The annual R and D Statistics Report 2017 was published by HMRC last month. Broadly speaking, it looks at how many R & D tax credits claims have been submitted and how much these claims cost the Exchequer. As ever, the devil is in the detail, with more interesting information such as the makeup of claims by scheme, region and industry sector (amongst other factors).

The most positive outcome of the 2017 report is that total R & D claims have increased by 19%, since 2015-16, to 26,255. This is great news for individual businesses and the economy as a whole.

As you can imagine, it is a rather dry document (you can download the full HMRC pdf version here) the  filled with tables of figures which present a range of information about the R and D Tax Credit Scheme. We focus on the main outcomes and give them some context where

What information are the statistics based on?

It is crucial to know what information any statistics are based on in order to assess their credibility. For this report, the information from company’s CT600 Corporation Tax forms is collated and considered alongside other “management information” held by HMRC.

Information included in your CT600:

  • Total amount of R and D expenditure
  • How much R and D tax credit you are paid
  • Which scheme you are applying under: SME, Large Company or RDEC

These figures are based on the 2015-16 tax year, which had a deadline for returns of 30th June 2017.

Note: It could appear that the numbers don’t tally up as there are more claims made than there are companies making a claim. This is because you can make more than one claim each year. A company could have more than one accounting period ending in this year, or make claims under different schemes.

Key Points of Interest

  • 19% increase in number of claims overall

This is compared with the previous tax year. This total number of R & D tax credit claims across all schemes has risen to 26,255.

  • 22% increase in SME claims

The overall increase is largely driven by this excellent rise in the number of SMEs participating in the scheme. In 2014-15, there were 17,875 claims; rising to 21,865 in 2015-16.

It is thought that there are a combination of reasons why there are more SME claims; the £10,000 minimum expenditure has been removed, the SME payable tax credit rate has gone up 3.5% to 14.5% and the enhanced expenditure rate has also gone up 5% to 130% in 2015-16. These factors mean that R & D Tax Credits are a more attractive financial prospect and that more SMEs are eligible to claim.

  • Total amount claimed

The total amount of R and D Tax Credits claimed across all schemes in 2015-16 is up to £2.9billion. This is £470million more than the previous year, which equates to a rise of 20%.

Since its launch, the SME R and D Tax Credit scheme has processed 170,000 claims and provided £16.5billion in tax relief.

  • Average Claim received

The average claim for a large company is £348,916 and is £61,514 for SMEs.

  • Cost of these claims

The cost of the SME scheme has gone up to £1.3billion and the Large Company Scheme and RDEC together cost £1.5billion.

  • Age of Company

As a percentage of total R and D claims:

22% – 5-10 years old

18% – 10-15 years old

17% – 0-5 years old

15% – 30+ years old

  • Breakdown by Sector

There is a lot of difference between the different sectors, in terms of number of claims made, proportion of total Research and Development total spend and the average claim for that industry.

Compare your industry to the SME R and D totals of:

  • Average claim: £61,514
  • Number of claims: 21,685
  • Total value of claims: £1.2billion

Agriculture, Forestry and Fishing

  • Average claim: £45,455
  • Number of claims: 110
  • Total value of claims: £5million (0.4%)

Mining and Quarrying

  • Average claim: £166,000
  • Number of claims: 15
  • Total value of claims: £2million (0.2%)

Manufacturing

  • Average claim: £48,823
  • Number of claims: 5,735
  • Total value of claims: £280million (22.54%)

Electricity, Gas Steam and Air Conditioning

  • Average claim: £166,667
  • Number of claims: 30
  • Total value of claims: £5million (0.4%)

Water, Sewerage and Waste

  • Average claim: £45,455
  • Number of claims: 110
  • Total value of claims: £5million (0.4%)

Construction

  • Average claim: £37,037
  • Number of claims: 540
  • Total value of claims: £20million (1.61%)

Wholesale and Retail Trade, Repairs

  • Average claim: £34,934
  • Number of claims: 2,290
  • Total value of claims: £80million (6.44%)

Transport and Storage

  • Average claim: £68,966
  • Number of claims: 145
  • Total value of claims: £10million (0.81%)

Accommodation and Food

  • Average claim: £41,500
  • Number of claims: 60
  • Total value of claims: £2million (0.2%)

Information and Communication

  • Average claim: £65,199
  • Number of claims: 5,905
  • Total value of claims: £385million (31%)

Financial and Insurance

  • Average claim: £70,175
  • Number of claims: 285
  • Total value of claims: £20million (1.61%)

Real Estate

  • Average claim: £41,500
  • Number of claims: 60
  • Total value of claims: £2million (0.2%)

Professional, Scientific and Technical

  • Average claim: £76,010
  • Number of claims: 4,210
  • Total value of claims: £320million (25.76%)

Admin and Support Services

  • Average claim: £50,209
  • Number of claims: 1,195
  • Total value of claims: £60million (4.83%)

Education

  • Average claim: £22,727
  • Number of claims: 220
  • Total value of claims: £5million (0.4%)

Health and Social Work

  • Average claim: £55,556
  • Number of claims: 180
  • Total value of claims: £10million (0.81%)

Arts, Entertainment and Recreation

  • Average claim: £68,182
  • Number of claims: 220
  • Total value of claims: £15million (1.12%)

Other Service Activities

  • Average claim: £40,000
  • Number of claims: 375
  • Total value of claims: £15million (1.21%)

As you can see, Manufacturing, Information and Communication and Professional, Scientific and Technical take the highest proportions of the overall R and D pay outs. There is a huge disparity in number of claims submitted in different sectors; with the highest being 5,735 in Manufacturing and only 15 in the Mining and Quarrying industry.

What R and D activities could you be claiming for? Remember that very few claims made doesn’t mean that there wasn’t any R and D activities happening in your industry. It means that they weren’t identified and companies missed out on a very lucrative entitlement. Buck that trend.

  • Regional Analysis

The South East and East of England claimed 62% of the overall R and D payable amount. This equates to 46% of all claims. There doesn’t seem to be any kind of pattern to the other regions’ applications. It is worth stipulating that this is worked out according to the region of each company’s head office address. So the actual R and D activities could be happening in another part of the country. This is definitely a trend for the government to watch and perhaps investigate more deeply.

Are R & D Tax Credits good value for the wider economy?

“Our current evaluation suggests that for each £1 of tax foregone, between £1.53 and £2.35 of R&D expenditure is stimulated.” (Evaluation of Research and Development Tax Credit 2015).

Or more simply, every for every £1 R and D Tax Credit paid to a company generates between £1.53 and £2.35 into the wider economy.

In 2015-16 a total of £2.9 billion was claimed in R and D Tax Credits.

That equates to between £4.4billion and £6.8billion injected into developing innovation in the UK economy.

That is excellent value for money. Not only does your R & D Tax Credit claim improve your business’s cash flow and investment into your next Research and Development project, but it is part of a very positive wider picture.

If you are not sure whether you have any expenditure that would qualify, or you’re confused by the process, then just get in touch with one of our experts today for a free no obligation consultation. You can contact us by filling in our online contact form or by calling us on 0330 0539 112.

 

Jamie Smith