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2020 Blog Series (1) – The Growth of R&D Tax

Figures have been taken from HMRC reporting – the full report can be found here.

This article is part of a series of blogs intended to pull together my thoughts and insight of the last 15 years in R&D Tax, and bring this together into some sort of coherent structure to highlight some of the issues and considerations for R&D claimants, accountants and policy makers. From this, we can then start to unpack ideas around how to keep R&D Tax in check for the longer term, as well as some ideas about the future of R&D Tax.

The R&D tax industry has experienced an unprecedented growth of claimants in recent years. On one hand, this is good news – it means much needed stimulus is going to both small and large businesses, encouraging business growth and attracting businesses, entrepreneurs and investors to come the UK during what will now be a very challenging decade of politics, COVID19 and Brexit. On the other hand, this growth has created a considerable administration burden, in terms of how HMRC can police and process the claims appropriately, ensuring that claims are compliant and justified.

Let’s focus on where we have been with some headline figures…

Click to see full detail. This will be explored in future blogs, but the R&D scheme really started to gain traction around 2010 – and from this point, the growth has been huge. Moving from nearly 10,000 yearly claims to beyond 60,000 claims in 2018.

 

 

 

 

During this time, the growth was fuelled by a number of positive changes to R&D tax, just some of which included:

  • Multiple increases to the SME and Large company scheme rates,
  • Relaxing IP conditions,
  • Amendments to the guidelines to re-focus certain definitions,
  • Changes to the definition of contractors (Externally Provided Workers),
  • Minimum spend removed,
  • A new ‘Large Company’ scheme created – referred to as RDEC (Research and Development Expenditure Credits)

… and more.

Some key facts and figures:

  • As of 30 June 2020, £5.3bn of R&D tax relief support has been claimed for 2018-19, corresponding to £35.3bn of R&D expenditure. Slight caveat – Due to the nature of the scheme, returns for the latest financial year reported (2018-19) can still be submitted past the cut-off date for the publication. As a result, data for 2018-19 is not yet complete.
  • The total amount of R&D support claimed increased to £5.1bn in 2017-18, an increase of 15% from the previous year.
  • The total value of R&D expenditure against which claims were made was £36.5bn in 2017-18, an increase of 8% from the previous year.
  • There have been 15,750 first time applicants for R&D tax credits in 2017-18, an increase of 10% from the previous year. This increase is largely driven by SME companies.
  • Between 2000-01, when the R&D tax credit schemes were launched, and 2018-19 (the most recent of the released data from HMRC), over 300,000 claims have been made and £33.3bn in tax relief claimed.

 

– Paul Mann, Managing Director @ LinkStep R&D Tax Services.