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R&D Tax Credit Statistics: September 2020

HMRC have just released provisional R&D tax credit data for 2020. As is the case with previous years, statistics for 2020 are not yet complete and should be viewed as provisional, until the data is revised next year. Below are some key findings taken from the report.

Key Findings:

• As of 30 June 2020, there have been 59,265 R&D tax credit claims for 2018-19, of which 52,160 are in the SME R&D scheme. This is based on partial data for the year and expected to increase as more returns are received
• 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.
• 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. To avoid misleading comparisons between years HMRC have compared the years discussing change between years, and 2018-19 2017-18 to 2016-17 in the publication when when discussing in-year characteristics.
• The ‘Manufacturing’, ‘Professional, Scientific and Technical’, and ‘Information and Communication’ sectors continued to have the greatest volume of claims, making up a total of 66% of claims and 71% of the total amount claimed for 2018-19.
• 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, over 300,000 claims have been made and £33.3bn in tax relief claimed.
• 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.

Click here to read the full report.

What are R&D Tax Credits and who can apply?

Research and Development (R&D) Tax Credit is designed to support companies that are working on particular innovative, scientific or technological advances. This could be anything from designing a new product, service or process to enhancing one that already exists. It can even be claimed on activities which were unsuccessful and to help companies which are loss-making.

Essentially, in order to qualify for R&D Tax Credits, the work must mean advancement in the overall field, not just for your own company. This means that an existing technology being used for the first time in your industry doesn’t count towards the relief.

The relief is received either as a reduction in a company’s Corporation Tax or as a cash payment from HMRC.

Projects that count as R&D

Work undertaken must be part of a specific project to make an advancement in science or technology. It cannot be in a theoretical field, for example pure maths, or a social science like economics.

The project must also be in relation to your company’s trade – either one that will be started once the R&D activities are complete, or one which currently exists.

To receive R&D Tax Credits, you must be able to explain to HMRC how the work:

• Looked to overcome a particular uncertainty (either technological or scientific)
• Aimed to make a specific scientific or technological advancement
• Recognised uncertainty and tried to overcome it
• Could not easily have been achieved by a competent professional in the field

There are two branches to the scheme, one for small and medium sized enterprises (called the SME scheme) and one for larger organisations (the RDEC scheme).

Which R&D Tax Credit scheme should my company use?

Small and medium sized enterprises (SMEs) should apply for their R&D relief using the SME programme, as long as:

• They have no more than 500 staff
• They have a turnover of under 100 million euros or a balance sheet total under 86 million euros

You may need to include groups, partnerships and linked companies when working out if you’re an SME.

SME R&D Tax Credits will allow your company to:

• Deduct an additional 130% of their eligible costs from their annual profit, plus the normal 100% deduction. This makes a total 230% deduction
• Receive a tax credit worth up to 14.5% of the surrenderable loss if your company is not turning a profit

Larger companies should make their application under the Research and Development Expenditure Credit (RDEC) scheme. However, this scheme can also be used by SMEs and larger companies who’ve been subcontracted to do R&D works by another larger company.

Tax Credits under the RDEC scheme allow 13% of a company’s eligible R&D expenditure, which is notably less generous than the SME scheme.

Claiming R&D Tax Credits is far more complex than other tax-related tasks

Compiling an R&D Tax Credits claim that stands any chance of success is far trickier than, say, filling in a tax return. Detailed records need to be presented for every piece of expenditure, and everyone involved in the R&D project needs to have an input. There are also many facets of R&D tax claims, but the beauty of using a portal means everything is in one place.

If you’re a UK-based company and believe you qualify for this highly generous incentive, head over to Tax Cloud and see our free demo. Don’t forget, if you already use Xero as your accounting software, it will integrate perfectly with Tax Cloud to make claiming even easier.

Try the Tax Cloud portal today

The aim of the Tax Cloud portal is simple - to make it easier, quicker and cheaper for UK businesses claiming R&D Tax Credits. Since its launch in September 2017, Tax Cloud has helped hundreds of SME’s particularly to achieve the money they’re owed. No fuss, no stress - and no traipsing around to any offices.

If you would like to know more about R&D Tax Credits, working with R&D specialists or anything we’ve addressed in this article please do contact our team or call 0207 360 4437.