New data published for the first time by HMRC has revealed the hotspots for R&D tax relief claims across the East Midlands.
Derbyshire-based businesses topped the league for the number of claims for R&D tax credits in 2015-16 at 295 claims, followed by Nottinghamshire on 275 and Leicestershire on 270.
In total, businesses across the East Midlands submitted 1,595 claims for tax relief for R&D expenses in 2015-16, claiming some £130 million, a 24% rise on the previous year, both in terms of the number and value of claims.
R&D tax credits are a tax relief designed to encourage greater R&D spending, leading in turn to greater investment in innovation. They work by either reducing a company’s liability to corporation tax or providing a cash injection for companies without a tax liability – typically loss-making businesses.
The statistics, which for the first time provide a detailed analysis of R&D claimants by region and sector, are skewed in that the geographical analysis is based on companies’ registered offices.
As a result, London tops the leaderboard for the number of claims. It is also little surprise that over 40% of claims in the capital are in the software and technology sector.
The East Mids region was eighth in the rankings and accounted for just six per cent of claims nationally, and 5% of total tax credits. Unsurprisingly, manufacturing dominated the claims made at 39% of total claims, followed by professional, scientific and technical, and software and technology.
Sheetal Sanghvi, an Associate Tax Director at RSM’s Leicester office, said: “While it is positive that overall R&D claim numbers across the East Midlands continue to rise, it’s not clear whether this is down to a large number of new businesses claiming, or whether it is those businesses late to the party in terms of making claims – we suspect it is the latter.
“We believe that the disparities that we see across the UK and across different sectors is due in large part to ongoing lack of awareness of how the relief can apply.
“The truth is that many more companies across the East Midlands are undertaking research and development work but they are not recognising that these activities could be eligible for tax relief, despite the high levels of HMRC engagement and support through the HMRC R&D Consultative Committee and other measures.
“The largest proportion of claims in the East Midlands were from manufacturers – not surprising given that the Midlands region continues to lead the manufacturing and engineering sector in the UK.
“However, it is interesting to note that only 40 claims were submitted in the construction sector which suggests that construction and civil engineering businesses lag behind when it comes to awareness that R&D tax relief could apply.”