R&D tax relief is open to any limited company within the UK — in any sector. However, some sectors are at the forefront of making claims for R&D tax credits and can often be rewarded with transformational sums for their business.
So, which industries have performed the best? We take a look at the top five, based on HMRC’s statistics for the R&D tax credit scheme covering 2018-9.
The manufacturing sector is number one at submitting claims. It includes companies making a wide range of products, including industrial equipment, electrical goods, vehicles, chemicals, plastics, clothing, and foodstuffs.
The high number of claims is understandable. Manufacturing is one of the largest sectors to contribute to the UK’s GDP. Manufacturing businesses work to come up with new products and are always seeking to improve existing products. Designs will have to be made, prototypes created, and intensive testing carried out before a product can go to market. Manufacturing processes are also constantly under review to make them more efficient and cost-effective. Also, qualifying R&D can occur in work carried out to ensure products are industry compliant.
Number of claims: 14,000
Amount claimed: £1,440m
2. Information and communication
Runner-up is the sector with IT at its core. Companies can include those involved in software development, software publishing, telecom companies, video and sound production, fund management, and insurance.
Software development is a particularly fertile area for generating R&D tax relief claims. The technical challenges needing to be satisfied to develop new software can be considerable. The integration of the software with existing operating systems can also present uncertainties that can only be overcome by extensive R&D.
Number of claims: 12,500
Amount claimed: £1,100m
3. Professional, scientific, and technical
This sector is almost as wide-ranging as manufacturing. Businesses within it include those encompassing engineering, architecture, biotechnology, security systems, advertising and media, and consultancies in, for example, tax.
Qualifying R&D is most likely to be found in the first three industries in this list. Any company with a scientific element to their activity is expected to be engaged in qualifying experimentation and testing. Engineers, including consulting engineers, will often have to carry out extensive R&D to overcome the technical uncertainties of a project even if their customer has already begun the design process. Many architects must try out unfamiliar materials and find solutions to a unique set of requirements on a project-by-project basis. The cost of this R&D cannot always be passed on to their clients.
Although the number of claims is smaller than those made by the Information and Communication sector, it makes sense that those claims’ value is higher.
Number of claims: 11,300
Amount claimed: £1,290m
4. Wholesale and retail trade and repairs
This sector includes wholesalers and retailers of a wide range of goods and agencies in the sale of agricultural equipment, industrial equipment, chemicals, household goods, food and the like. Those engaged in vehicle and machine repairs are also included.
Qualifying R&D is harder to find in this sector, as shown by the claims figures below. The increase in online sales may have helped some businesses in this sector that have found innovative ways to process sales and handle customers’ financial information. R&D involved in the streamlining or automation of their business operations may also be eligible. Other qualifying examples might be tweaks made to software to improve activity efficiencies, such as stock-taking and delivery schedules.
Number of claims: 6,900
Amount claimed: £310m
5. Admin and support services
At number five in our list the admin and support sector, including call centres, tour operators, HR and recruitment, and rental firms for vehicles and machinery. As in the above industry, qualifying R&D can be found in software changes to help them run their businesses more effectively. Increasing use of the cloud has also had a positive effect, with solutions sought to overcome challenges that impact factors such as performance or integration.
Number of claims: 3,400
Amount claimed: £210m
It is evident that the top three sectors — Manufacturing, Information and Communication, and Professional, Scientific and Technical — account for the vast majority of all claims for R&D tax credits. Together, they are responsible for 66% of claims and 71% of the total amount claimed for 2018-9.
Construction comes a close sixth with approximately 3,300 claims, but a slightly higher amount claimed. Other sectors have a much lower claim rate. For example, fewer than 1,000 businesses included under agriculture, forestry and fishing claimed R&D tax relief in 2018-19. And yet agriculture alone is known to use extensive R&D in soil science, feed and pesticides, so this is one sector that deserves further attention.
Whichever sector you operate in, recognising the qualifying R&D in your business can be a challenge. Speaking to an R&D expert can be a big help in ensuring that no work eligible for R&D tax credits is missed and that the claims process is made as timely and hassle-free as possible.
Where do you go from here?
Our team works in partnership with the leaders of SME businesses, guiding them through the five easy steps to a successful R&D tax credit claim:
- We’ll chat about your projects
- You upload the necessary information to our secure portal
- We analyse the data on your behalf
- We submit your R&D tax credit claim with HMRC
- HMRC reviews your claim and will notify either you or us if a repayment is due
We take care of most of the claim process, keeping client commitment to a minimum and maximising the claim value that can be received
With a single-minded focus on R&D tax relief and a diverse team of technical experts, we work hard for clients so they can put more back into their company.
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