New figures show significant disparities in regional and sector R&D activity

New data published by HMRC has highlighted significant disparities in R&D tax relief claims across different UK regions and sectors.

R&D tax credits are a tax relief designed to encourage greater R&D spending, leading in turn to greater investment in innovation. They work by either reducing a company’s liability to corporation tax or providing a cash injection for companies without a tax liability – typically loss making businesses.

The statistics, which for the first time provide a detailed analysis of R&D claimants by region and sector, are skewed in that the geographical analysis is based on companies’ registered offices. As a result, London tops the leaderboard for the number of claims. It is also little surprise that over 40 per cent of claims in the capital are in the software and technology sector.

The South East takes silver, missing out on the top spot by only 500 claims with 4,500 in total. As with London, software and technology is the leading sector, although narrowly beating manufacturing.

The North West was third in the rankings, with manufacturing dominating the claims made at 30 per cent of total claims. This is followed by software and technology, and professional scientific and technical.

The East of England narrowly misses out on a podium place (only 100 claims behind the North West). Interestingly, the East of England is the area with the greatest proportion of construction sector claims. However, this is still only 3 per cent of total claims in the region, confirming that construction and civil engineering lags behind when it comes to awareness of R&D tax relief and its relevance to these businesses. The largest sector claims in the East went to ‘professional, scientific and technical’ – not surprising given that Cambridge and its outlying spin-out community sits in this region.

Commenting on the new numbers, James Tetley, national head of R&D at RSM said:

‘While it is positive that overall R&D claim numbers continue to rise sharply, it’s not clear whether this is down to a large number of new businesses claiming, or whether it is those businesses late to the party in terms of making claims – we suspect it is the latter.

‘Overall, these figures confirm what we already knew, namely that there remains real disparities in claims across the country. We believe this is down to ongoing lack of awareness of how the relief can apply to certain sectors.

‘Whilst it is heartening that software and technology claims are on the increase, it is equally disappointing that traditional British manufacturing firms continue to hide their light under a bushel, not acknowledging that what they do every day is in many cases incredibly skilled, and often market leading. Engineering businesses particularly are most at risk of failing to recognise their R&D activity.

‘The truth is that many more companies are undertaking research and development work but they aren’t recognising that this could be eligible for tax relief, despite the high levels of HMRC engagement and support through the R&D Consultative Committee and other measures.’