20% Increase in R&D Tax Claims
According to the latest figures from HMRC, the total number of R&D Tax Credits Claims are up 20% and this figure is largely driven by a rise in the number of SME's claiming with HMRC forced to add extra resources to meet the rising demand.
The total number of claims rose to 52,335 of which 45,045 were claimed by SMEs, which is an impressive increase of 22% from 2015-16.
An impressive £4.4bn was claimed in the period 2016-2017 which was an increase of 14% from the previous year. Since the incentive was launched in the year 2000, over 300,000 claims have been made by UK businesses with a considerable £26.9bn claimed in tax relief.
There appears to be a slight bias in the location of the claims. The R&D claims are concentrated in businesses whose registered office address is in London, the South East or the East of England. (46% of all claims and 61% of the total amount claimed for 2017-18). Whilst this certainly is an interesting statistic, HMRC makes clear that the registered office might be in London, this may not be reflective of where the R&D work was undertaken. Indeed, R&D could be carried out overseas in many cases forming part of a wider R&D project by a UK based firm.
The professional, technical and scientific, information and communication sectors and manufacturing sectors continue to have the greatest number of claims making up an incredible 68% of claims and 73% of the total amount claimed for 2017-18.
Hamilton Wood & Co has identified that companies less than 10 years old accounted for a significant 40% of claims. The firm states that this suggests that despite HMRC's best efforts, there is a misconception that R&D Tax Credits are purely for younger companies. Many larger companies may continue to undertake work that constitutes innovative R&D work however, many fail to recognise their ability to claim due to many of the misconceptions surrounding the incentive.
Whilst the increasing number of claims is good news for the UK and its many businesses, the increased activity has led to backlogs in processing the claims.
Simon Dodd, managing partner at Hamilton Wood & Co. said: ‘This increase in claims is good news for the UK and is clear evidence the governments Industrial Strategy is working. Although the increase in claims has led to an increased backlog at HMRC, the net result is still an overwhelmingly positive one for UK businesses and a successful R&D Tax Award provides many UK businesses a much-needed boost which can lead to further innovations. Some businesses are facing delays of up to 9 months whilst waiting for a decision on their claims to be processed but HMRC is aware and has added a new resource to reduce the backlog so that it is better placed to handle the higher level of claims that we are now seeing.'
The processing of R&D claims has now moved to a larger dedicated team in Cardiff from October 1st, 2019, and this is a key strategic decision by HMRC to enable it to better handle demand fluctuations.
'Swift processing of claims is critical to make sure that any R&D award is made and presented to the company claiming as fast as possible. For many smaller, emerging businesses cash-flow is often an issue, and so ensuring a swift-turn around of claims is an all too important responsibility for HMRC.
Simon is the Managing Director of Hamilton Wood & Company.
His interests are reading, astrology, martial arts, and siberian huskies.