Every Autumn, around the end of September or in early October, the Office for National Statistics and HMRC distribute their annual review of the R&D Tax Relief Scheme, you can find full details of the report at www.gov.uk/government/statistics/corporate-tax-research-and-development-tax-credit/research-and-development-tax-credits-statistics-september-2021
This year, they are reporting on claims for the tax year ended 31 March 2020, so “pre-pandemic”, based on claims processed up 30 June 2021, but in what I believe to be a change to recent years, they are also forecasting estimates for returns not yet filed within the figures, which allows for a far better comparison. A company with a 31 March 2020 year end has until 31 March 2021 to submit an initial tax return which for regular claimants would normally include their claim for the year, but a company has until 31 March 2022 to submit their claim on an amended tax return, regardless of whether they are a regular or new claimant.
Estimated claims have continued to rise
Based on claims received to 30th June 2021, HMRC estimate that there will be a total of 85,900 claims filed for the year to March 2020 of which 76,225 were under the SME Scheme, so 9,675 were Research and Development Expenditure Credit claims of which more than half (5,305) were from SMEs as subcontractors or who had been the beneficiaries of grants or subsidies for their R&D activity. The scheme has delivered £7.4bn of R&D Tax Relief support to claimant companies, who between them have spent more than £47.5bn on R&D.
The SME Scheme is for small and medium sized companies that employ less than 500 people (including across a group) and that doesn’t exceed both a turnover and balance sheet threshold. It offers a 130% uplift of eligible costs, which for a profit-making company delivers a tax refund to the tune of 24.7% of the eligible costs and for a loss-making company the chance to surrender the losses for a cashflow boost of up 33.35% of the eligible spend. The RDEC scheme which is generally for larger companies, generates a taxable Expenditure Credit which can either be offset against a current year tax liability or where insufficient tax exists, a repayable element to the tune of 9.72% for these statistics or 10.53% for eligible costs incurred after 1 April 2020.
Based on these current estimated figures the number of claimants has increased by 16% and the amount claimed in total has increased by 19%. It will be interesting to compare these figures with next years for the period of the pandemic, our experience tells us that there has been significant interest in Research and Development Tax Relief as companies have come out of the other side of the pandemic and been keen to secure additional cashflow from legitimate claims.
Of the £7.4bn claimed £4.4bn has been claimed under the SME scheme making the average SME Scheme claim worth around £57,700, with the median claim a more realistic comparator for first time claimants being £21,500. 63.5% of the £4.4bn paid out for SME scheme claims was for the payable tax credits, by surrendering a current year tax loss.
Where and who are the largest claimers?
The bulk of the claims have come from Companies with their registered office in London and the SouthEast, 35% of the claims and 49% of the value of claims have come from these regions, however these may not necessarily reflect where the R&D is happening.
The three largest sectors for claims remain as Information and Communication, Manufacturing and Professional, Scientific and Technical, between them they make up more than 63% of the claims and more than 69% of the value of claims.
72% of claims were under £50k and the largest number of claims, nearly 15,000 featured in the up to £5k band of tax relief.
Why is it relevant to my business?
The statistics don’t actually cover “Green Technology”, however we would expect many Green businesses to fall within the Manufacturing and Professional, Scientific & Technical sectors and maybe within the Electricity, Gas, Steam and Air Conidtioning or Construction headings. We know from our own experience, that there are a large number of companies who are significantly involved in Research and Development activity within the “Green sector”, we’ve recently been working with Tensei who use straw to manufacture high quality papers and a business using Solar Energy to power parts of Britain’s railways.
However, we also know that many companies are continuing to miss out on claiming for projects that they either undertake in house or subcontract out to others. This is borne out by the statistics, where in the previous year to 31 March 2019, they show that there were nearly 20,000 new claimants. The provisional number of new claimants to March 2020 Is just over 10,000, this is merely a timing difference and not the result of “peak new claimants”.
With the ongoing challenges around recovery in a post-COVID-19 world, shouldn’t you really be looking into whether you can be making a claim? What would your company do with the cash if you were claiming, the median the tax saving of around £21.5k, or the average saving of around £58k? How would those plans change if you found out that your claim was more than £100k, do you have some new machinery you’re looking to install or another new product in the pipeline, awaiting some funding before development can start?
If you’ve been developing a new product, process, material or device or significantly enhancing an existing one, and it has been scientifically or technologically challenging to develop it, then you have the potential to claim. You might have also applied for a grant from Innovate or another funding body to support you with funding for your project. If you were successful with that application, then at the very least you will be able to claim under RDEC for all the eligible costs that you have incurred that will be supported by the grant. If the grant only funded a proportion of the overall costs, then you may be able to claim some of the unsupported costs under the SME Scheme, but that will be dependent upon the source of the funds. If your project didn’t get funding but you carry on with it regardless, then you will be able to claim all of your eligible costs under the SME Scheme.
It’s never too late to start
A significant tax saving can make a huge difference to a business. If your company has a December 2019 year end, you have until the end of this calendar year to make a claim, but realistically, you have until the week before Christmas for it to be submitted. It takes us about two weeks from initial discussion to prepare a claim for a highly motivated company.
Why not contact us to find out whether you can be a part of the statistics next year? You can book a free, no obligation #FindOutinFifteenMinutes discovery call with our Director, Simon Bulteel on calendly.com/Simon-Bulteel What’s the worst thing that can happen if he says no after those 15 minutes? Now compare that to receiving a refund of overpaid tax!
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