When the tough times come and the economy loses strength, one of the first areas of spending that businesses cut back on is research and development. The future is important, but not if you can’t make it through the present.
Despite the UK economy experiencing turbulence over the last few years, the latest government data on R&D tax credits shows that more businesses than ever claimed relief against investments for the future. According to government data, the total amount of qualifying R&D expenditure used to claim R&D tax relief is estimated to be £44.1 billion for the 2021/22 tax year. Of this, UK businesses claimed £7.6 billion worth of support between 2021 and 2022.
Off the back of this, Approved Business Finance has compiled the R&D Breakdown Report, which takes a deeper dive into the UK business landscape to determine which industries are claiming the most support, and where those businesses are based.
How much support industries claimed in R&D tax credits in 2021/2022:
The manufacturing industry has the most R&D claims by far, with 20,180 claims processed between 2021 and 2022, totalling over £10 billion worth of expenditure. Examples of qualifying R&D activities in the manufacturing industry include automation, the digitisation of manual processes and the development, testing and subsequent adoption of new tools, products and processes.
Second to manufacturing are businesses encompassed by the Scientific, Professional and Technical umbrella of companies - often simply referred to as professional services. These can include firms specialising in finance, law, computer science or marketing, among others. Professional services firms filed 13,390 claims between 2021/22, totalling over £7.75 billion worth of relevant expenditure.
Public Admin, Defence & Social Services firms filed the fewest claims, just 85 over the year, totalling £105 million of expenditure. It’s important to note that the UK defence budget isn’t covered here.
Claims by Real Estate firms brought the least expenditure, with 440 claims against just £60 million worth of R&D activities.
However, if we break down the figures further and look at the % of businesses per sector accessing this funding, it paints a slightly different picture.
How common are R&D claims across different sectors?
The figures show that almost 1 in 20 manufacturing firms claimed some sort of R&D support (4.87%), whereas only 0.06% of real estate firms claimed support. Put another way, only 27 of the estimated 705,057 real estate businesses in the UK claimed any sort of relief.
The agricultural sector saw a strong uptake of R&D claims, with almost 1 in 43 businesses (2.33%) seeking support with their development efforts.
Regional breakdown of businesses claiming R&D support:
Perhaps unsurprisingly, London businesses had the most R&D claims (19,780) and the highest total R&D expenditure (£13.68 billion) of any other area of the UK. This is likely due to the high concentration of businesses in London, especially large businesses, and also the fact that R&D activity can happen anywhere in the UK and still be claimed in London, as long as the business is registered there.
The South East had the second-most claims, with businesses in the region filing 13,260 claims totalling £8.64 billion.
The North East of England was found to have the least amount of R&D expenditure, still, a respectable £710 million. 26% of businesses in the North East are scientific or wholesale/retail businesses. 12% of businesses in the North East are construction firms.
Northern Ireland was found to have submitted the fewest claims, with just 2,270 submitted in the year.
Total claims by cost band:
The data shows that the majority of claims are small in scale, with over 15,000 claims being for amounts of up to £5,000. Despite the large volume of claims, the total cost comes to just £35 million.
By contrast, the total cost of claims over £2 million came to over £1.8 billion.
Claims as a % of businesses in the region:
As with the industry comparison earlier, another interesting way that we can break this data down is by looking at the number of claims as a % of businesses in the region.
Using figures from Hit Horizons, we’re able to determine that despite businesses in Northern Ireland filing the fewest claims, it filed the most in proportion to the size of its business community. 1.83% of businesses in Northern Ireland made an R&D claim in 2021/22.
The region has seen a flurry of investment activity from big firms in the past few months, including consultancy firm EY announcing 1,000 new jobs and a plan to create a new regional hub outside Belfast.
The former industrial powerhouse of the North East of England claimed the second-most R&D support, with 1.62% of businesses filing a claim, and Yorkshire & The Humber were third in the rankings, with almost 1 in 120 businesses (1.18%) in the region claiming some sort of R&D support.
By comparison, London has over 2.9 million registered companies within its regional border. Of these, just 0.68% made an R&D claim.
Why are R&D tax credits important?
Shiv Halai, Managing Director of Approved Tax, said: “For many businesses, true, meaningful development is out of reach due to the sheer size of the cost implications involved. A lot of companies track their progress throughout the year by the size of their revenues and headcounts, with slow incremental improvements to their businesses. “For those businesses who want to take bigger steps, there are tax initiatives from the government that can help. But the system is also changing, meaning firms who regularly apply for R&D relief need to be aware of the changes.
“One of the biggest changes is that firms now need to submit their R&D tax relief claims within two years of the end of the claim period to receive relief. For example, businesses that intend to apply for relief on projects undertaken before April this year (2023) will need to submit their claim before April 2025.
This might seem like a long time away, but it’s best to be thorough and think about this now, rather than last minute and miss out on the deadline.
“There are also lots of other ways businesses can accelerate their growth, such as by exploring finance options for equipment, vehicles and specialist tools.”
To find out more about how your business can benefit from R&D tax relief, contact our R&D tax specialists at: www.approved-tax.co.uk/r-and-d-tax-credits
*Methodology
● Approved Business Finance used the latest government data to establish official figures and estimates relating to R&D activity and expenditure between 2021 and 2022. ● Figures relating to regional business breakdowns and the number of businesses in each region are from Hit Horizons.
Data correct as of October 2023.