The manufacturing sector is facing a challenging trading landscape, but the resilient businesses are still innovating as there has been an 18 per cent year-on-year rise in the number of claims for research and development tax credits. More manufacturers have submitted claims in 2017-18 with the level of support increasing by 7 per cent, according to the latest statistics from HMRC
The latest data shows that companies in the sector submitted 11,930 claims for research and development tax credits in 2017-18, up from 10,110 in 2016-17 reported in September last year.
A total of £1.3bn was claimed as qualifying R&D in 2017-18, an increase of 20 per cent from the previous year.
First introduced in 2000, R&D tax credits are designed as a tax relief to encourage greater R&D spending and innovation. They work by reducing a company’s tax bill by an additional amount depending on the company’s allowable R&D expenditure. Since launch, over 300,000 claims have been made, with £26.9bn claimed in tax relief.
Over time, the rate of relief has become more generous and is now worth up to 230 per cent for SMEs. This means that for each £100 of qualifying costs, the corporation tax paid by SMEs on income could be reduced by up to an additional £24.70 (applying 19 per cent UK corporation tax rate for FY18). For large companies, where the R&D Expenditure Credit (RDEC) regime applies, the relief is now worth 12 per cent pre-tax (or 9.72 per cent post-tax).
'The latest statistics largely confirm the trends we have seen over the past few years. It is sometimes easier to identify innovation with a new product so it may not be surprising that the manufacturing sector continues to represent the highest number of claims made in the UK.
'Across all sectors, the statistics show that just over 40 per cent of claims are made by companies less than 10 years old, which suggests that despite continued efforts by both HMRC and the adviser community, businesses still perceive R&D tax credits to be predominantly for young companies. This is certainly true in the manufacturing sector, where established UK manufacturers often underestimate their entitlement to claim, by overlooking year on year innovations to remain globally competitive, particularly when thinking more broadly to encompass process innovation rather than a traditionally narrower look at product only R&D. In contrast, we have seen relative newcomers in the food and drink sub-sector accounting for significantly more claims in recent years.
‘This rise in claims has proved challenging for HMRC and companies applying for R&D tax reliefs have experienced significant delays in the processing of claims, sometimes up to nine months.
'To the relief of claimants and their advisers, new resource has cleared the backlog and HMRC is now better equipped to handle the higher levels of claims that we now see. From 1 October 2019, the processing of claims has moved to a larger team in Cardiff which should be better able to cope with the fluctuations in demand. Prompt processing is crucial to help reduce the time lag between R&D spend and receiving the relief. This is particularly important for early stage businesses where cashflow is often an issue.
'While much is uncertain as we move towards the next deadline in the Brexit saga, enhancing the R&D scheme would be an obvious lever available to the Government to try and boost the UK economy post Brexit, particularly if State Aid constraints no longer applied.'