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Claims for research and development (R&D) tax relief have soared in recent years, reaching £3.7bn in 2015-16, an increase of 25% from the previous year, while so far £3.5bn has been claimed for 2016-17, according to the latest statistics from HMRC
HMRC says there have been 39,960 R&D tax credit claims for 2016-17 to date, of which 34,060 are in the small and medium-sized enterprise (SME) R&D scheme and 5,900 in the research and development expenditure credit (RDEC) scheme used by large companies. This is based on partial data for the year and is expected to increase as more returns are received.
The increase in the number of SME claims in recent years is likely to reflect the effect of changes made to the SME scheme from April 2012 onwards. HMRC has said that the removal of the requirement for a minimum R&D expenditure of £10,000 has meant that more companies are eligible to apply for the relief.
The tax authority reports it has identified additional information on claims made for 2014-15 and 2015-16, resulting in substantial upward revisions to the number and value of claims reported for those years.
These statistics now show there were 35,145 claims made in 2014-15 and 43,040 claims in 2015-16, an increase of 22%. The increase was primarily driven by a rise in the number of SME claims, which totalled 36,820 in 2015-16, an increase of 23% from 2014-15, while the total number of claims for the large company and RDEC schemes increased by 17% to 6,215.
R&D claims are concentrated in companies with a registered office in London, the South East or the East of England (45% of all claims and 60% of the total amount claimed for 2016-17). However, HMRC points out the regional split is based on the registered head office location so may not be where all of the R&D activity takes place.
The manufacturing, professional, scientific and technical, and information and communication sectors continued to have the greatest volume of claims, making up a total of 71% of claims and 75% of the total amount claimed for 2016-17.
In total, between 2000-01, when the R&D tax credit schemes were launched, and 2016-17, over 240,000 claims have been made and £21.4 bn in tax relief claimed.
There has also been an increase in the number of companies claiming relief under the patent box, which enables them to apply a lower rate of corporation tax to profits earned after 1 April 2013 from their patented inventions and equivalent forms of intellectual property.
In 2015-16, 1,160 companies claimed relief under the patent box with a total value of £754.3m, rising to 1,025 companies claiming £942.5m in 2016-17. The total value of the relief claimed increased year on year since 2013-14 as the benefit of the patent box was phased in.
HMRC says that although the number of companies claiming relief in 2016-17 appears to have decreased since the previous year, these statistics are based on partial data and are expected to be revised upwards when a complete set of data becomes available in autumn 2019.
Just over a quarter of the companies were classified as ‘large’ (2015-16: 28.4%, 2016-17: 27.3%) and together they accounted for a clear majority of relief claimed (2015-16: 95.5%, 2016-17: 96.3%). Most companies were in the manufacturing sector.
Mark Tighe, CEO of tax relief specialists Catax said: ‘The R&D tax credit scheme was launched at the turn of the century but British businesses have now finally taken up the cudgel. They are ploughing into investment just as the Chancellor has been urging them to do.
‘The government is aware that Britain has a global reputation for innovation and so is actively trying to encourage firms of all sizes to invest in R&D. The importance of exporting innovative tech, pharma, engineering and manufacturing cannot be overstated in current climate.
‘These figures prove that Britain is an attractive place to invest in R&D and the government will be hoping big multinationals take notice.’
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