HMRC’s R&D Report – 2020

For this Insight TRS wanted to bring our clients and prospective clients HMRC’s own breakdown of who is claiming and who is being awarded research and development tax rebates and credits. In the COVID-19 pandemic claims are more important than ever for many companies as they look to be rewarded for innovation whilst also benefitting from improved cash flow and reinvestment.

HMRC September 2020 Report Key Points

  • As of 30 June 2020, there were 59,265 R&D tax credit claims for 2018-19, of which 52,160 were in the SME R&D scheme
  • As of 30 June 2020, £5.3bn of R&D tax relief support had been claimed for 2018-19, corresponding to £35.3bn of R&D expenditure
  • In 2017-18 the total number of claims for R&D tax credits rose to 62,095, an increase of 17% from 2016-17. The increase was primarily driven by a rise in the number of SME claims
  • The total amount of R&D support claimed increased to £5.1bn in 2017-18, an increase of 15% from the previous year
  • The total value of R&D expenditure against which claims were made was £36.5bn in 2017-18, an increase of 8% from the previous year
  • Manufacturing, Professional, Scientific and Technical, and Information and Communication sectors continued to have the greatest volumes, making up 66% of claims and 71% of the monies claimed for 2018-19
  • There were 15,750 first time applicants for R&D tax credits in 2017-18, an increase of 10% from the previous year driven by SMEs companies.

History

Since the R&D tax credit schemes were launched in 2000/01 over 300,000 claims have been submitted, receiving £33.3bn in tax relief. Whilst this was concentrated in companies with a registered office in London, the South East or the East of England, the claims represent research and development carried out all over the UK, away from registered and head offices focused in and around London and its commuter belts.

The Pandemic

Although the latest HMRC report – the next one will be issued in Autumn 2021 – focuses on 2017/18 and 2018/19 we believe the trends seen in claims levels and who’s doing the claiming will largely be accelerated in key innovation sectors.

But we can expect some other sectors and companies to grow, too, as they have innovated in ways to do business, to remain open, to work and to collaborate remotely. It’ll come as no surprise that we can expect to see a rise in manufacturing innovation as companies have designed and put to use all manner of products to allow them to trade. Along from the TRS offices we can enjoy a pint in a geodesic dome – not something we expected outwith a SciFi future or Eden Project night out.

R&D Growth Trends

A key trend highlighted by the 2020 report is the general growth in R&D claims.

As we expect more claims around pandemic-led innovation and change, we can also expect more companies to come into the R&D fold. Regardless of COVID one observation at TRS is that outside the traditional innovation and leading-edge sectors a lot of SMEs, especially in more traditional settings such as the trades, don’t even realise they can claim. And even when faced with the opportunity to claim, some don’t understand why it’s an option or what the benefits can be – cashflow, reinvestment, improved balance sheet.

Let TRS Help

This is one way TRS fills the gap as many traditional accountants and auditors do not provide cutting-edge tax services. There are no hard-and-fast rules about who we see claiming. Many businesses have innovated to solve problems, bring new products and services to market, especially during the COVID-19 pandemic. Recently we have looked at the accounts of a tyre company, a medium-sized roofing contractor, and a bespoke furniture maker.

As the pandemic impacts jobs, profitability, and we possibly see inflation start to creep up, anyone who can claim, should – for some companies, especially SMEs, it might be the difference between survival and going under. If you think your company has or is about to invest in R&D, and therefore may have a claim to make, please contact TRS.

Please check our Insights section regularly for tax industry updates, TRS opinion, and information to help all our clients make the best R&D tax decisions.

To discuss all your R&D tax requirements, please contact us via our website, or contact Jonathan Finnie for an informal but confidential chat on 07595 981950.

Note: all statistics, percentages and references are correct at the time of writing.