In our previous blog, Cap on R&D Tax Credits in the 2018 Budget, we outlined this bit of bad news for investors in innovation. But the government has published their current R&D statistics for the 2016-17 tax year – and its good news all round.
These figures are compiled using information collected on CT600 forms (also known as Corporation Tax returns) and HMRC’s administrative records of the R&D scheme. They are based on returns submitted by 30th June 2018.
As we all know, statistics can be read in many different ways. The R&D statistics are analysed by a number of variants, including: SME and RDEC schemes, geographical region of registered office and industry sector. More of our analysis on these areas in future articles. First we want to share the impact of some updates that HMRC have made to historical R&D statistics.
Revisions to previous R&D statistics
One striking thing about the newly released statistics, is the revision of previous years’ numbers to show that considerably more successful SME R&D claims were made in previous years that had been reported.
This is because of how the filing deadline and companies’ accounting periods interact. As explained in HMRC’s published commentary to the statistics: “The filing deadline for CT returns is one year from the end of the accounting period. The filing deadline for accounting periods ending in 2016-17 was 31 March 2018, and the extra 3 months allows for the processing of returns. R&D tax relief claims may be submitted up to one year after the filing deadline, therefore the 2016-17 statistics presented here will be subject to revision in next year’s publication. As well as new statistics for 2016-17, this release includes revisions to 2014-15 and 2015-16 as a result of receiving additional returns and incorporating management information to improve the statistics.”
How does the adjustment affect the actual figures?
HMRC’s revisions to make their R&D figures more accurate shows that the R&D scheme was even more successful than first reported. The adjustments are for the 2014-15 and 2015-16 tax years, showing how many SME R&D claims were made:
2014-15: original figure = 17,875, corrected figure = 29,840
2015-16: original figure = 21,865, corrected figure = 36,820
That’s an increase of 66% and 68% respectively on the previously reported totals. Or, 27,000 more innovative companies benefiting from R&D tax relief.
How do things look for 2016-17 so far?
There is already a substantial increase in the number of companies submitting SME R&D claims. Up until the 30th June 2018 deadline, 34,060 claims have been received. Due to the regulations around accounting period deadlines, there is a full 18 months before the final deadline on 2016-17 claims. We wonder if the final total will also be around 60% more.
Why are we so excited about this rise in R&D claims?
Genuinely, it’s the pure maths of it all. It is the most amazing tax relief, in terms of actual return on investment. Not just for individual companies growing their business, but for the UK as a whole.
In the government’s own assessment of how efficient R&D tax relief is, they concluded that for every £1 it spent paying R&D tax relief, £2.35 is generated.
£3.5 billion R&D tax credits claimed so far in 2016-17 = generates £8.1 billion extra investment in future British R&D development.
Now £3.5 billion does sound like a lot of money, but let’s put it in context. The government earned £575 billion just in taxes in 2016-17. So the £3.5 billion cost of R&D tax credits its only 0.6% of our total tax takings. Just looking at the simple comparison of cost versus amount generated, it makes sense: spend £3.5 billion to make £8.1 billion. That’s £8.1 billion invested in the best of British brain power.
This is such a positive area of tax to work in, please get it touch if you think your business should be involved. We’ll delve into some other key statistics in subsequent articles, such as average claim amounts and how the different industry sectors compare.