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HMRC report shows rise in R&D tax claims

Phil Hartley, tax manager at North West accountancy firm Mitchell Charlesworth, comments on the latest research and development (R&D) tax relief statistics from HMRC and the latest trends from R&D claims in the North West.

Revised statistics from HMRC for 2016/17 and 2017/18 tax years continue to show that the number of R&D tax credit claims being made are on the rise – 53,015 for 2016/17 and 62,095 for 2017/18 claims compared to 43,665 in the 2015/16 tax year.

The 2018/19 tax year is showing that the number of claims made is already nearly on par with the 2017/18 tax year total, with 59,265 claims having already been made up to 31 March 2020 with another year of submissions still to come. This is only likely to increase significantly in the next year with increased claims being made by companies to assist with their cashflow during the COVID-19 pandemic crisis.

In turn this has led to increased tax relief being claimed – in 2016/17 £4,490bn was claimed, an increase of 13% from 2015/16. In 2017/18 £5,145bn was claimed, an increase of 14.5%. £5,345bn has already been claimed for 2018/19, an increase of 4% with 12 months available to make a claim. In the statistics last year, HMRC predicted that they would be paying out over £5bn in relief per year, which was a significant milestone. Now, HMRC believe that they will have provided £6.3bn in relief to companies for the 2018/19 tax year. This substantial increase in relief demonstrates that companies have become more aware of R&D tax relief as a mechanism to support cashflow during the current pandemic crisis and the government’s continued backing for R&D activities to be undertaken in the UK.

The biggest concentration of claims remains in manufacturing, IT and professional, scientific and technical sectors as with previous years. However, the construction industry saw a big rise in claims along with the health and social work industry and the food industry, as was the case in the previous year’s statistics. This continues to demonstrate that more ‘non-traditional R&D’ companies are realising that R&D tax relief can be claimed for the activities that they undertake.

The North West continues to be the third largest claimant of R&D tax relief in the country in terms of number of claims, accounting for 10.35% of the claims, with only London and the South East accounting for more claims. However, the amount of R&D tax relief claimed by North West companies is substantially lower than the national average. The average SME claim in the North West is £38,664 compared to the national average of £51,130. The average research and development expenditure credit (RDEC) claim (the scheme used by larger companies) is £171,233 compared to the national average of £294,919. Although these results are pleasing and continue to show the North West as a leading area for R&D activities, they do also demonstrate that the cost base for our region is much lower than that in the South of England, meaning that average claim values are unlikely to reach the levels of London and the South East any time soon.

These latest statistics continue to show that the government and HMRC are supporting R&D tax relief claims and that awareness of the relief is growing at significant rate. We would expect to see this continued level of growth into future years but with a reduction in the amount of support being provided in the 2020/21 tax year as a result of the Coronavirus Job Retention Scheme reducing the cost base that could be available for relief.

Businesses need to ensure that a claim is valid and that all available costs are considered and captured, which is where we are available to provide advice and support and have a great track record of assisting our clients in maximising the support available to them.

For advice and guidance on R&D tax relief and if it is applicable to your business, please contact Phil Hartley below.