Innovative SMEs that are investing in research and development stand to reclaim an average of £50,000 according to new figures from HMRC.

The government’s latest Research and Development Tax Credit Statistics Report dated October 2019 reveals that since the scheme was launched in 2000, over 300,000 claims have been made and in the region of £27bn paid to SMEs in tax relief, with the average value of an individual claim now standing at £50,000.

Commenting on the report, Ian Batkin, joint founding partner at Luvo Financial, which specialises in advising businesses on R&D Tax claims, says: “The figures confirm high numbers of claims by SMEs since the government’s R&D Tax Credits scheme launched, however more UK SME’s should be making a claim.

“Whilst the number of claims has broadly increased year-on-year, it is clear the total number remains at significantly less than 10% of all UK eligible SME’s. With the average claim now worth £50,000, eligible and innovative SMEs are simply missing out on reward and financial support for their R&D, and potentially a considerable amount of money that they could use for the next stage or ongoing investment in their product or service development activities.”

The latest figures show the number of first time applicants has also increased, by around 15% year-on year with more than 60% of claims made by companies in the manufacturing, professional, scientific and technical and information and communications sectors.

“In addition, a wide range of other sectors now seem to be aware of the R&D Tax schemes, with a rise in claims from companies in agriculture, transport and storage, financial and insurance, education, health and social work and arts, entertainment and recreation sectors,” says Ian. “This proves that it isn’t what sector you work within that matters, it’s what you do, and hopefully this will provide further incentive for more companies to claim.”

Key points:

• So far, £4.3bn of R&D Tax relief support has been claimed for 2017/18, corresponding to £31.3bn of R&D expenditure.
• In 2016/17, the total number of claims rose by 20% on the previous year to £52,335, primarily driven by a rise in the number of SME claims.
• In 2016/17, the total amount of R&D support claimed has increased by 14% on the previous year, to £4.4bn.
• Companies with a registered office in London, the South East, and East of England made more claims than the rest of the UK – accounting for 46% of all claims and 61% of the total amount claimed.
• Claims by SME’s in the Midlands has increased by about 15% year-on-year, with average claim values up by in around 3%, but these are still in the region of 20% lower than the national average claim value, meaning there is certainly more scope for even more Midlands-based companies to both claim and to potentially claim more.

Trends

Ian explains that the statistics are in-line with previous year’s trends: “The number of claims in total and by SME’s increased by more than 20% in 2016/17 and this will almost certainly continue to rise in 2017/18. However, the reported figures for 2017/18 are incomplete, so drawing any major conclusions is difficult, but based on the now complete claims figures for 2016/17, overall the numbers are increasing.”

He adds: “The reasonably consistent year-on-year increase in claims in recent years could be down to the government’s recent changes to the scheme – the removal in April 2012 of the £10k minimum expenditure level; the increase in the Payable Cash Credit amount from 11% to 14.5% in April 2014; and the increase in the enhanced expenditure multiplier from 125% to 130% in April 2015.

“It may also be that at last, more companies are finally becoming aware that the R&D Tax scheme is a very worthwhile incentive that can be confidently claimed, providing that they ‘tick the eligibility boxes’ and go about presenting the claim in the correct way.”

Find out more

Luvo works extensively for SMEs in a wide variety of industry and market sectors, from software development and IT, to engineering and manufacturing. It was founded in 2015 by its Partners Ian Batkin and Vicki White, both qualified accountants. For more information: enquiries@luvofinancial.co.uk.