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UK businesses claim a record £7.4 billion in R&D tax credits

HMRC building

On 30th September, HMRC released its annual Research and Development (R&D) Tax Credits Statistics, encompassing March 2019–March 2020.

The report provides information on the number of companies claiming R&D tax credits and their associated cost to the Exchequer, and here are Easy R&D’s key takeaways.

The estimated number of R&D tax credits claims

  • The estimated number of R&D tax credits claims for the year ending March 2020 is 85,900 — an increase of 16% from the previous year.
    • This comprises of:
      • 76,225 (89%) small or medium-sized enterprises (SME) scheme claims.
      • 9,675 (11%) Research and Development Expenditure Credit (RDEC) scheme claims.
    • The number of R&D tax credits claims can be broken down as:
      • 38,050 (49.92%) claims purely for a deduction from Corporation Tax liability. 
      • 38,175 (50.08%) claims that include a payable tax credit.

The estimated total amount of R&D tax credits claimed

  • The estimated total amount of R&D tax credits claimed for the year ending March 2020 is £7.4 billion — an increase of 19% from the previous year. This corresponds with £47.5 billion of R&D expenditure — 15% higher than the previous year.
  • The £7.4 billion comprises of:
    • £4.4 billion through the SME scheme — 25% higher than the previous year.
    • £3.1bn from the RDEC scheme — 11% higher than the preceding year.
  • Within the RDEC scheme, large companies have claimed £2.7 billion, and medium-sized companies have claimed £375 million.

N.B. Although the volume of claims under the SME scheme is much larger than under the RDEC scheme, RDEC claims are generally much larger than those claimed by SMEs.

  • The largest concentration in the amount claimed is in the ‘Over £2m’ band (33%)

Cost band analysis of the number of R&D tax credit claims, 2019-20

HMRC R&D tax credits stats

R&D tax credits claims by sector

  • Making up 64% of claims and 69% of the total amount claimed for the year ending March 2020, the sectors with the greatest volume of claims remain:
    • manufacturing (25% of the total amount claimed)
    • professional, scientific and technical (24% of the total amount claimed)
    • information and communication (20% of the total amount claimed)

Amount of R&D tax credits claimed by industry sector (£ million)

HMRC R&D tax credits stats by sector

R&D expenditure used to claim R&D tax credits

  • The amount of qualifying R&D expenditure used to claim R&D tax credits is estimated to be £47.5 billion for the year ending March 2020 — an increase of 15% from the previous year.
  • Most of this expenditure (67%) was by companies claiming under the RDEC scheme.
  • Expenditure by SMEs has risen year on year growth with:
    • an increase of 22% from SME scheme claimants
    • an increase of 15% from SMEs claiming under RDEC since the previous year
  • Expenditure by large companies claiming in the RDEC scheme has increased by 11%.

Claims by region

  • The proportions of claims and amount claimed by region are similar to recent years, with a concentration of claims by companies with registered offices in: 
    • London (20% of total claims and 31% of the total amount claimed)
    • the South East (15% of total claims and 18% of the total amount claimed)

N.B. the registered office location may not be where all or any of the R&D activity takes place.

Any industry can claim R&D tax credits. If you’d like to find out if your business could be eligible for a slice of the billions of pounds that HMRC hands out to innovative businesses each year, you can get in touch with us here.

R&D tax credits: how Easy R&D can protect you from HMRC enquiries

man working on laptop in workshop

In recent months, HMRC has grown increasingly concerned about the number of mistakes companies make in (research and development) R&D tax credits claims. 

HMRC has introduced measures to improve R&D claims’ quality — including 100 new compliance staff to its R&D unit. 

The number of R&D tax credits claims they’ve challenged has spiked. A significant number of enquiries are into companies that have filed larger claims and those that have submitted claims without expert help.

What is an HMRC enquiry?

Investigations can happen when a claim has been submitted for up to two years after HMRC has paid out.

Enquiries can arise if HMRC tax inspectors: 

  • have misgivings about if the work you’ve undertaken qualifies as R&D
  • can’t clearly understand your R&D activity and related costs in a technical report
  • see that you’ve overclaimed or claimed for expenses that you shouldn’t have

What could an HMRC enquiry mean for your business?

Facing an enquiry is challenging and time-consuming. Even if your claim turns out to be 100% valid, lengthy back and forths with tax inspectors typically take six months to a year to resolve and could soil your relations with HMRC. That’s a long time if you’re a start-up or growing business and need a cash injection.

Should HMRC tightening up procedures be cause for concern?

The growing number of HMRC investigations shouldn’t be taken lightly, which is why you need an expert on your side that offers a free enquiry resolution service — as we do.

We reduce the chances of an HMRC challenge

Should HMRC challenge your claim, we’ll deal with it as part of our end to end service and only involve you if necessary. HMRC’s questions can be in-depth — looking for answers on how a claim was put together and the methodology behind it to assess against their guidelines.

Tax inspectors will also want to see how:

  • you looked for an advance in science and technology
  • you had to overcome uncertainty
  • you tried to overcome this uncertainty
  • the R&D work couldn’t be easily worked out by a professional in the field

A claim that withstands investigation starts with a strong R&D narrative

Our expert consultants, skilled technical report writers, and qualified accountants will strengthen your R&D narrative through a robust technical report that:

  • explains your R&D work in a language HMRC’s tax inspectors will clearly understand
  • validates your claim size
  • makes signing off your claim an easy decision for tax inspectors to make

Working with us

The best way to avoid an HMRC enquiry is to work with an R&D tax credits specialist. 

If you’d like to talk to us about filing an R&D tax credits claim and how we protect you from HMRC enquiries, you can get in touch with us here.

Could hidden research and development in your business be your ticket to R&D tax credits?

Woman wearing hard hat working on machinery

Work that qualifies research and development (R&D) tax credits scheme typically includes:

  • creating new products, processes, software, or services
  • changing or modifying products, processes, software, or services

These are often planned ventures — usually included in your business’s strategy and easy to identify as part of your R&D tax credits claim. Yet you could be forced to react to situations outside of your company’s control. 

You may consider reacting to these circumstances as merely routine business changes, but your responses may yield R&D valuable tax credits in the form of a reduced Corporation Tax bill or lump sum. 

Averaging £54,000 per claim, Easy R&D finds eligible R&D in the most unlikely of places, and hidden R&D could be an unexpected source of income for your business.

The key to uncovering hidden R&D is understanding how external forces impact your business and your actions to overcome them. External factors can create technological and/or scientific uncertainties that make essential criteria for claiming R&D tax credits. 

But don’t be put off by the words ‘scientific’ and ‘technological’. Businesses across a whole host of industries can claim R&D tax credits — and there doesn’t need to be a white lab coat in sight. Even the most subtle improvements to existing products, processes, services or software can generate returns. 

Has your company been affected by legislative changes?

For example:

  • You’re no longer able to use a particular substance, material or component which has forced you to investigate alternatives
  • Changes to environmental legislation have impacted your production process

Has your company experienced technical challenges relating to problems with existing or new suppliers?

For example:

  • Your company has been forced to substitute a particular substance, material or component due to your supplier’s availability, which has caused technical problems

Has your company changed its product or service in response to market conditions?

For example:

  • Changes in consumer behaviour and demands have driven you to rethink your products, processes or services

If any of the above scenarios have occurred in your business and technical challenges arose when reacting, it’s a good sign that you could be eligible for R&D tax credits. Challenges arising from project delays and overruns caused by external factors can also come into play when collating eligible costs.

If you’d like to find out if hidden R&D in your business could lead you to R&D credits, then you can get in touch with us here.