East Midlands R&D tax credit claims rise by almost 30%, says HMRC

East Mids R&D hotspots revealed
Sheetal Sanghvi

New statistics from HMRC reveal that there’s been a 28% year-on-year rise in the number of claims for research and development tax credits submitted by East Midlands companies in 2017-18, with the level of support rising by the same amount

The latest data shows that East Midlands companies submitted 3,120 claims for research and development tax credits in 2017-18, up from 2,430 in 2016-17 reported in September last year.

UK-wide, the total amount of R&D support claimed rose to £4.3bn, an increase of £1bn from the previous year.

First introduced in 2000, R&D tax credits are designed as a tax relief to encourage greater R&D spending and innovation. They work by reducing a company’s tax bill by an additional amount depending on the company’s allowable R&D expenditure. Since launch, over 300,000 claims have been made, with £26.9bn claimed in tax relief.

Over time, the rate of relief has become more generous and is now worth up to 230 per cent for SMEs. This means that for each £100 of qualifying costs, the corporation tax paid by SMEs on income could be reduced by up to an additional £24.70 (applying 19 per cent UK corporation tax rate for FY18). For large companies, where the R&D Expenditure Credit (RDEC) regime applies, the relief is now worth 12 per cent pre-tax (or 9.72 per cent post-tax).

The statistics show an interesting trend relating to age of claimant companies. Just over 40 per cent of claims are made by companies less than 10 years old. This suggests that despite continued efforts by both HMRC and the adviser community, businesses still perceive R&D tax credits to be predominantly for young companies. However, more established companies continue to innovate year on year to remain globally competitive, and may be failing to recognise their entitlement to claim.

Sheetal Sanghvi, RSM’s regional head of R&D tax said: “It’s very encouraging to see that East Midlands companies saw the highest rise in R&D claims across all UK regions.

“This rise in claims has proved challenging for HMRC and companies applying for R&D tax reliefs have experienced significant delays in the processing of claims, sometimes up to nine months.

“To the relief of claimants and their advisers, new resource has cleared the backlog and HMRC is now better equipped to handle the higher levels of claims that we now see. From the beginning of this month the processing of claims has moved to a larger team in Cardiff which should be better able to cope with the fluctuations in demand. Prompt processing is crucial to help reduce the time lag between R&D spend and receiving the relief. This is particularly important for early stage businesses where cashflow is often an issue.

“While much is uncertain as we move towards the next deadline in the Brexit saga, enhancing the R&D scheme would be an obvious lever available to the Government to try and boost the UK economy post Brexit, particularly if State Aid constraints no longer applied.”