Small business R&D tax credit claims hit £1.3bn record high – up a third in a year

  • Claim gap to large business narrowed to £200m
  • Businesses in the regions still missing out on claims
  • Large business still disadvantaged when compared internationally
Research and development (R&D) tax credit claims by small business have hit a record high of over £1.3 billion in the past year according to latest statistics published by the UK government*, up by a third on last year’s total of £1bn, itself a record high (see graph below).

But there is still a long way to go in incentivising smaller businesses to invest in R&D – and addressing the imbalance between claims by small businesses in the regions versus those based in London and the South East may go some way towards improving this.

Last November, Prime Minister Theresa May announced an extra £2 billion in funding for R&D primarily for ‘priority technologies’ such as artificial intelligence and biotech, but there is still no visibility as to the extent to which this funding will be used for R&D tax credits. Overall R&D tax credit claims rose by £460 million in the past year.

Steven Levine, Partner, comments: “It is encouraging that SMEs are making more use than ever of R&D tax credits, but it would be great to see even better take up outside London and the South East.

“Moreover, many large businesses remain more attracted to countries such as Ireland and France where the rate of tax credits are 25% and 30% respectively, compared to the UK where the net tax credit rate for large businesses of around 9%.

“We would like to see the tax credit rate improved for large business as we go through the Brexit process and want these businesses to invest in the UK. 

“In addition, there needs to be increased clarity from government on what sort of expenditure qualifies for R&D tax credits. Many businesses assume that it must involve artificial intelligence or advanced chemistry, but companies across more ‘traditional’ sectors like construction, leisure and manufacturing routinely miss out on tax credits they could be claiming.”

£1.3bn record high in small business use of R&D tax credits





Source: Corporate tax: Research and Development Tax Credit, 14 Sept 2017 (HMRC)

 

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