How R&D Tax Credits Are Affected by the North-South Divide

“The UK is more regionally divided than any comparable advanced economy…Other countries have poor bits. Britain has a poor half.” – Geographical

The great North-South divide.

Some say it started in 1066 when William the Conqueror charged up the country to control the ‘unruly North.’  Others believe it dates back to the first industrial revolution when the North was overrun with manufacturing factories, which left a long-lasting effect on the social, cultural and economic conditions of that part of the country.

“With 90% of the manufacturing industries situated in the north, the concentration of the country’s economy was in the south.” – Phantom Media

Either way, a clear divide between the North and South still exists today and the differences can be seen with disposable income, life expectancy and even R&D tax claims! There is a huge geographical split between companies in the South and companies in the North claiming R&D tax relief.

Want to find out why?

What are R&D tax credits & why are they important for the economy?

Before we find out what’s driving the geographical divide between the North and South and their R&D claims, let’s first establish what R&D tax credits are and why they’re good for the UK economy.

What are R&D tax credits?

“It's one of the UK government's top incentives for encouraging investment in research and development and allows up to 33.35% of a company's R&D spend to be recovered either as a reduction in Corporation Tax or a cash repayment.” – Myriad Associates

Last year the government paid out over £5.3bn in R&D tax relief to companies conducting research and development to create new or modify existing products, processes or services.

Introduced in the year 2000, the R&D tax relief incentive provides financial support to companies of any size, in any sector, so they can develop new, pioneering projects and become industry frontrunners on a global scale. 

Why are R&D tax credits good for the economy?

Put simply, research and development into new innovative ideas and projects is our ticket out of the recession. The governments R&D tax relief incentive is a crucial way to encourage companies, large and small, to invest in innovation, develop ground-breaking products and put the UK at the forefront of R&D and innovation across the globe.

Now we’ve covered what R&D tax credits are and why they are a key part of rebuilding the economy, it’s time to see where the North and South differ when it comes to maximising the R&D tax credit incentive.

North vs South: Where is the big R&D tax credit divide?

“London and the South still dominate in terms of benefiting from Government R&D initiatives.” – London Loves Business

With 60% of last year’s R&D claims coming from companies based in London and the South East, it’s clear that the South is way out in front when it comes to maximising innovation and R&D tax relief. As a whole, the South made 22,040 claims last year which gave Southern-based companies over £1,515m in funding for R&D projects. 

Comparatively, the North made just 16,185 R&D tax claims. This gave Northern companies a measly £820m to fund their innovations. For example, Hull only made 30 claims last year, and even the bigger cities like Blackpool and York only saw 35 and 155 claims respectively.

But the big question is…

Why did the South make 5,855 more R&D tax credit claims than the North?

It’s impossible to know for sure, but there is one valid reason why the South might have claimed more R&D tax relief than the North.

Failure of the governments levelling out scheme

“Despite the Government’s “levelling up” agenda to spread wealth creation across the country, little has been achieved in promoting R&D investment equally across all regions of the UK.” – London Loves Business

Although the government outlined plans to provide additional support and give specific R&D incentives to the North in Boris Johnson’s ‘levelling up scheme’, there doesn’t seem to be much evidence of this.  

Investment in skills, innovation, transport and culture to create the ‘Northern Powerhouse’ is a running joke amongst businesses north of Lichfield. 

“We all laugh at the Northern Powerhouse…Promises of improvements and investment. People in the North just laugh about it” - Doug Martin, Leeds Beckett University

Local governments have instead suffered major cutbacks in terms of investment in innovation and R&D:

“All of the stuff that we used to do around business innovation has been stripped back. Really, until we fix that kind of underlying investment in public services, it’s going to be very difficult for local leaders to invest and shape areas so that some of the inequalities can be tackled.” Sheila Blake, Labour MP for Sheffield Hallam

Plus, with half of all foreign direct investment projects going to London and the Southeast, it’s no wonder that London and the South are streets ahead when it comes to R&D investment and spending.

What can be done to close the R&D tax claim gap?

R&D tax relief specialists, like Myriad Associates, help thousands of companies from all over the UK claim their maximum R&D entitlement, and are helping to bridge the R&D tax claims gap between the North and South.

But not all companies need or can afford to pay for, this type of specialist R&D tax credit help and advice.

So, what’s the solution?

Tax Cloud: The UK’s first self-service R&D tax relief portal 

Powered by the R&D experts at Myriad Associates, Tax Cloud is an affordable solution for companies wishing to make a claim for the R&D funding that they’re entitled to.

All you do is sign up for the self-service online portal and work through the simple, step-by-step R&D tax claims process. You’re fully supported the whole way through by R&D tax experts who are on-hand to answer all your questions. These experts will also thoroughly check your R&D claim report before they file it to HMRC and make sure you are getting your full entitlement.

To find out more, visit the Tax Cloud website, give us a ring on 020 7360 4437, or drop us a message here.

Author Barrie Dowsett, ACMA, GCMA CEO, Tax Cloud