31ST OCTOBER, 2019

Do R&D Tax Credits Represent Value For Money For The Government?

The simple answer is yes, by enlarge, we think they do. The R&D Tax Credit incentive scheme is as popular now as it has ever been with thousands of UK companies reaping the rewards. This has meant that not only does it continue to swell the government coffers through encouraging employment, but means that more and more UK companies are thousands of pounds better off when it comes to covering the cost of their innovative activities. Here we take a look at the statistics.

What are R&D Tax Credits exactly?

R&D Tax Credits are a tax break offered to companies by the UK government to incentivise innovation. They allow businesses to reclaim up to 33% of the expenditure they have incurred in the course of research and development (R&D) activities, even if the project ultimately failed.

In practice, SMEs (regardless of whether they are making a profit or not) can get back up to 33% of the amount they’ve spent on eligible innovation work. Larger companies can receive up to 10% of their R&D expenditure back. The relief is offered either as a partial Corporation Tax refund or as a tax-free lump sum. It can be used for anything, from purchasing equipment to paying salaries or taking on developers.

Unfortunately, despite the fact that this relief is not new (R&D Tax Credits first came about in the year 2000), many companies are still unaware that their R&D work is eligible. We’ve also found that many of the ones that do claim often aren't including enough costs in their application. In both cases, these companies can be missing out on a serious financial injection.

Interested? Find out more about R&D Tax Credits on the Myriad UK website, or use our Tax Cloud calculator for businesses to see how much your company could claim.

What are the recent trends in R&D Tax Credit claims?

Most companies applying for R&D Tax Credits come under the umbrella of the SME scheme. Broadly speaking, the number of SMEs making a claim has gone up, but many of these are of lower value - nearly 20% receive under £5,000 in fact. There is also an increasing number of SMEs who access the relief via the larger company (RDEC) scheme due to the fact they have benefitted from previous state-funded grants or subcontracted R&D. On average, SMEs falling into this category have enjoyed larger benefits.

For larger companies, the average benefit is just under £700,000, with 7% of such companies receiving just under half (43%) of all the money claimed. It’s worth noting however that - like last year - these figures are based on partial data. This in turn can limit data accuracy to indicative trends. Any R&D Tax Credit claims classed as “non-standard” - i.e ones which were not submitted via a CT600 - are not included.

One more thing to note…

The fact that a small proportion of large companies hoover up 43% of all the funding awarded by HMRC is not actually a bad thing. Large businesses naturally will have a higher cost base than the vast majority of SMEs, and R&D relief isn’t dished out from a fixed pot of money. It’s essential that all qualifying companies continue to submit a claim for their relevant R&D activities, and that the correct amount of relief is awarded to each one.

SMEs using RDEC

The RDEC branch of R&D Tax Credit was unveiled in 2013, and since then we’ve seen a steady increase in the number of SMEs using it. As we’ve already mentioned, we have found that this is mostly because grant-funded SMEs are prohibited by EU state aid law from claiming under the SME scheme. This has meant that a number of applicable SMEs are using the RDEC scheme as a workaround.

Despite the fact that the RDEC scheme is actually less generous than the SME one, these businesses are able to benefit from a larger claim value (of around £65,000 on average) compared to businesses using the SME scheme (£54,000 average claim).

There’s one small fly in the ointment though: As a whole, claim numbers are up, but the average claim value is down

There has been a flattening of average claim values recently and we think the main reason for this is due to an increasing number of claims for only small amounts of money. On average, nearly 80% of SME R&D Tax Credit claims are worth under £50,000 and surprisingly around 20% of all claims are worth under £5,000.

We have found however that this isn’t always reflected with the clients we have worked with. Undergoing any R&D activities is usually pretty expensive, and so the relatively high proportion of very small claims is quite a surprise. It’s difficult to believe that so many SMEs are paying out only £10,000 or less on R&D each year. So why has this happened?

It could be for a number of reasons but primarily it’s likely to be that SMEs are nervous about the application process for R&D Tax Credits and only want to ‘test it out’ by making a small claim. It could also be that they (wrongly) assume that small amounts are less likely to be scrutinised so heavily by HMRC or that there is less chance of an enquiry. This is why it’s so important to get accurate, professional advice when making an R&D tax relief claim as the process is notoriously convoluted and myths and inaccuracies are rife. Remember, all claims need to be of the highest quality, regardless of their size.

Where can I turn to for help and advice about R&D Tax Credit claims?

Claiming R&D Tax Credits involves a large amount of paperwork, and strict adherence to HMRC guidelines is paramount. As an expert team of R&D accountants and specialists, Myriad Associates can guide you through the process and make sure you claim for everything you’re entitled to. There’s also our Tax Cloud calculator for businesses which allows you to enter your own company’s figures for fast, accurate results.

To discuss anything further or ask us a question, simply get in touch on 0207 118 6045 or use our contact page for professional R&D tax advice right when you need it.

Barrie Dowsett, ACMA, GCMA
Author Barrie Dowsett, ACMA, GCMA CEO, Tax Cloud
Latest posts
26TH MAY, 2020 How The COVID-19 Pandemic Has Brought Our Supply Chains Into Sharp Focus
19TH MAY, 2020 What Is The Future Fund?
12TH MAY, 2020 Innovation And The Race To Build Ventilators
5TH MAY, 2020 Top 7 Tips For Attracting An Angel Investor
28TH APRIL, 2020 Small Business Tips For Cash Flow During COVID-19
21ST APRIL, 2020 Top Technology Trends Set To Transform The Travel Industry Beyond 2020
15TH APRIL, 2020 Types of Business Crowdfunding
7TH APRIL, 2020 How Previous Pandemics Have Inspired Medical And Social Innovation
2ND APRIL, 2020 Imagine What £65,000 Could Do For Your Innovative Company - Think R&D Tax Credits
2ND APRIL, 2020 Tax Cloud - COVID-19 Update
24TH MARCH, 2020 What Is Entrepreneurs Relief?
17TH MARCH, 2020 How R&D Across The World Is Helping To Fight Coronavirus
11TH MARCH, 2020 Top 10 Reasons Why Your Business Should Invest In Social Media
3RD MARCH, 2020 Top 5 Easy Ways To Speed Up An R&D Tax Relief Claim
25TH FEBRUARY, 2020 How Does Using Tax Cloud Compare To Making A DIY Claim For R&D Tax Credits?
18TH FEBRUARY, 2020 Latest Statistics Around R&D Spending In The UK Since 2017
11TH FEBRUARY, 2020 Easy Mistakes That Accountancy Firms Make Regarding R&D Tax Credits
4TH FEBRUARY, 2020 Tax Cloud Announces New Reduced Pricing
27TH JANUARY, 2020 5 Ways Charities Are Using R&D Advances In Virtual Reality
21ST JANUARY, 2020 Soft Drinks Sector - What Are The R&D Challenges?
15TH JANUARY, 2020 Science Fact: R&D and Eco-Robots
3RD JANUARY, 2020 5 New & Innovative Technologies Helping To Cut UK Food Waste
17TH DECEMBER, 2019 5 (Legal) Ways To Reduce Your Corporation Tax bill
10TH DECEMBER, 2019 Continuing Innovation After Brexit
4TH DECEMBER, 2019 8 Important Factors To Consider When Starting Up A Business
26TH NOVEMBER, 2019 Are You A Growing Business? Get Money From The Government To Help With The Costs
19TH NOVEMBER, 2019 Why Construction Companies Should Embrace R&D Tax Credits
13TH NOVEMBER, 2019 7 Most Common Misconceptions About R&D Tax Credits
5TH NOVEMBER, 2019 How Should I Allocate My Staff Time For An R&D Tax Credit Claim?
31ST OCTOBER, 2019 Do R&D Tax Credits Represent Value For Money For The Government?
22ND OCTOBER, 2019 What Are The Four Main Benefits Of R&D Tax Credits?
14TH OCTOBER, 2019 Flight Shame Has Landed - But Could R&D Be The Aviation Industry's Ticket To Greener Travel?
10TH OCTOBER, 2019 What Power Does HMRC Have Over My R&D Tax Credit Payment?
1ST OCTOBER, 2019 Why Do Some Applications For R&D Tax Relief Fail?
24TH SEPTEMBER, 2019 R&D Tax Credits: What Happens If I Need To Switch From The SME Scheme To The RDEC Scheme, Or Vice Versa
17TH SEPTEMBER, 2019 What Financial Help Is Available In The UK For Entrepreneurs?
10TH SEPTEMBER, 2019 What Consumables Can Be Claimed Under R&D Tax Relief?
3RD SEPTEMBER, 2019 How Long Does It Take For HMRC To Make A Decision On An R&D Tax Credit Claim?
29TH AUGUST, 2019 What Is The Most Efficient Way Of Submitting An R&D Tax Credit Claim?
21ST AUGUST, 2019 Are Businesses In Wales Getting The Most Out Of The R&D Tax Credits Scheme?
13TH AUGUST, 2019 How Can Companies Find Extra Money To Help Prepare For A No Deal Brexit?
6TH AUGUST, 2019 Quick Guide To R&D Tax Reliefs In Engineering
31ST JULY, 2019 Claiming R&D Tax Credits In The Healthcare sector
26TH JULY, 2019 How Can Businesses Make R&D Investment A Priority?
18TH JULY, 2019 How Will Brexit Affect R&D Tax Credits?
12TH JULY, 2019 Tax Cloud Launches In Ireland
5TH JULY, 2019 How To Claim A Critical Tax Boost For Your SME
5TH JULY, 2019 R&D Tax Credits Made Simple And Affordable
28TH JUNE, 2019 Why Are SME’s Missing Out On R&D Tax Relief
14TH JUNE, 2019 Is My SME Eligible For R&D Tax Credits?
3RD JUNE, 2019 Why Use An R&D Portal Over An R&D Advisor?
24TH MAY, 2019 How SMEs Can Benefit From R&D Tax Credits
14TH MAY, 2019 Charities Benefit Following Tax Cloud's Successful Show at Accountex
25TH APRIL, 2019 Tax Cloud's Most Innovative Companies 2019
12TH APRIL, 2019 Accidental Innovation - Tax Cloud's Top 8
5TH APRIL, 2019 A Practical Guide To R&D Tax Relief At Accountex 2019
27TH MARCH, 2019 What Software Projects Qualify For R&D Tax Credits?
15TH MARCH, 2019 3 Automotive Innovations To Look Out For In 2019
1ST MARCH, 2019 What Is Research And Development In Business?
22ND FEBRUARY, 2019 Growth Hack: Tap Into R&D Tax Credits
15TH FEBRUARY, 2019 Beyond R&D Tax Credits - Public Funding For Your Innovative Start-up
1ST FEBRUARY, 2019 5 Steps To Deliver An Optimised R&D Tax Credit Claim
25TH JANUARY, 2019 Top Tax Cloud FAQs
16TH JANUARY, 2019 What Projects Qualify For R&D Tax Credits In The Medical Industry?
11TH JANUARY, 2019 Accounting Practices Are Generating Fee Rates Of £325/hr
2ND JANUARY, 2019 R&D Tax Credits - It's Not As Difficult As You Think
14TH DECEMBER, 2018 4 Ways To Determine If You Qualify For R&D Tax Credits
26TH NOVEMBER, 2018 What Projects Could Be Eligible For R&D Tax Relief In Manufacturing?
2ND NOVEMBER, 2018 How To Know If Your Business Is Entitled To R&D Tax Credits
25TH OCTOBER, 2018 Why Isn’t The Agricultural Industry Claiming R&D Tax Credits?
10TH OCTOBER, 2018 Is Your Business Eligible For R&D Tax Relief?
3RD OCTOBER, 2018 The Most Common Mistakes People Make With R&D Tax Credits
18TH SEPTEMBER, 2018 #1 R&D Tax Claim Portal ‘Tax Cloud’ Launches Xero Integration
14TH SEPTEMBER, 2018 What To Look For In An Online R&D Tax Credits Claim Portal
7TH SEPTEMBER, 2018 5 Ways To Grow Your Accountancy Practice
31ST AUGUST, 2018 Common Pitfalls To Avoid While Claiming R&D Tax Credits
24TH AUGUST, 2018 How Far Back Can I Claim R&D Tax Credits?
17TH AUGUST, 2018 Should I Use A Specialist Or My Accountant For My R&D Tax Credits Claim?
27TH JULY, 2018 3 Things To Consider When Making An R&D Tax Credits Claim
13TH JULY, 2018 R&D Tax Credits – Don’t Fall Through The HMRC Trapdoor
25TH JUNE, 2018 Tax Cloud Shortlisted For Innovation Of The Year
30TH APRIL, 2018 Benefits Of A Self-Service R&D Tax Credit Portal
13TH MARCH, 2018 R&D Tax Credits Platform Tax Cloud Celebrates 100 SME’s Seeking Expert Support
5TH FEBRUARY, 2018 How R&D Tax Credits Can Help Your Startup Grow
29TH JANUARY, 2018 Getting The Best Returns From Your R&D Tax Credits Claim
22ND JANUARY, 2018 Introducing: The Tax Cloud Partner Programme
18TH JANUARY, 2018 What Costs Can You Claim Through R&D Tax Credits?
9TH JANUARY, 2018 Common Misconceptions About R&D Tax Credit Claims
5TH DECEMBER, 2017 R&D Tax Credits Made Simple For Small Businesses
20TH NOVEMBER, 2017 The 3 Things You Need To Consider When Making An R&D Tax Credits Claim
Popular Tags
Start your Tax Cloud claim now Discover if you qualify and ensure your R&D tax claim is maximised. Get started
Powered by Myriad Logo

Myriad Associates helps businesses maximise tax reliefs and secure R&D grant funds. We specialise in R&D Tax Credits, Video Games Tax Relief, Innovate UK grants, Horizons 2020 grants, and Research and Development Capital Allowance Claims.

  • Submitting R&D tax claims since 2001
  • 100% success rate
  • Over £100m claimed and counting
  • Industry leading specialists
  • In-house technical, costing and tax experts
  • Member of the Research and Development Consultative (RDCC) committee

Meet some of the team behind Tax Cloud

Barrie Dowsett Barrie Dowsett ACMA CGMA Chief Executive Officer
David Farbey David Farbey MA, FISTC, FRSA Technical Consultancy Director
Lisa Waller Lisa Waller CTA, ACCA R&D Tax Manager
Lauren Olson Lauren Olson MA, MISTC Senior Technical Consultant