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South: R&D tax relief claims rise by over 50%

28 September 2018
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Finance

New statistics from HMRC have revealed that there was a 52% year-on-year rise in the number of claims for research and development (R&D) tax credits submitted by companies in 2016-17, with the level of support provided rising by 20%.

The latest data shows that companies submitted 39,960 claims for research and development tax credits in 2016-17, up from 26,255 in 2015-16 reported in September last year. The total amount of R&D support claimed rose to £3.5 billion, an increase of £575m from the previous year. 

A total of £24.9b was claimed as qualifying R&D in 2016-17, an increase of 8% 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 240,000 claims have been made, with £21.4b claimed in tax relief. 

Over time, the rate of relief has become more generous and is now worth up to 230% 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% UK corporation tax rate for FY18). 

In an interesting update to the statistics this year, HMRC have tracked back into recent years, to look at the number of claims made after the filing deadline, but before the two-year claim window closes. This shows that a significant number of claims are being made after the filing deadline, (some 13,705 in 2015-16 – 90% of which were by SMEs) suggesting that many companies still rely on advisers bringing this to their attention and making retrospective claims in the final 12 months running up to the claim window closing. This further exacerbates the time lag between initial investment and R&D credit receipt for companies, which does little to help the cashflow of growing businesses.

Commenting on the figures, James Tetley, partner and national head of R&D at RSM, said: "The continuing increase in both the quantum and number of claims being made is of course welcome news. However it also brings into sharp focus the operational pressure that HMRC face in processing and risk assessing these claims, ensuring the right companies make claims, but also that these claims are processed in a timely manner. 

"In the last 12 months, both through practical experience as agents, but also through discussions with the senior leads within HMRC, our experience is that there has been a significant backlog in claims being processed. In some cases this is up to six months. 

"This is a really disappointing position to be in. The R&D units have always been supportive, commercially minded and helpful and over the years have built a collaborative approach to working with R&D advisers to best support companies. Unfortunately, they are being let down by resource constraints that prevent them from engaging with businesses and the adviser community in a constructive way. 

"We can only hope that these figures serve as a prompt to re-commit greater resource to operationally managing the R&D schemes, which are a crucial support to growing, innovative UK businesses."


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