Is R&D stagnating after a lack of funding?
After positive trends in R&D tax credit uptake, the signals are innovation is still being held back by a lack of funding.
Figures released last month have left those involved in research and development (R&D) in the UK worried. The growth of R&D spending has slowed dramatically in real terms since the Brexit vote two years amid uncertainty in the business community.
Historically, spending on R&D hovered around just 1.1% of GDP, despite the introduction of government incentives like R&D tax credits back in 2000. This ranked the UK a shocking 11thin the EU for R&D spend as a share of GDP.
The trend, however, since then was that more businesses were benefitting from R&D tax credits, with the latest figures showing that spending on R&D by UK businesses rose by 4.9%.
However, adjusted for inflation, this equates to just 2.9% which is the smallest increase, in real terms, for several years. This is indicating that, while there is an upward trend, the curve is slowing, and UK businesses are becoming weary of investing in R&D.
The Government realise that the current climate does not lend itself to massive investment in research and development. But in order to compete on the global market, UK companies need to be investing in R&D. The budget 2018 saw the Government’s pledge to raise the total of R&D investment to 2.4% of GDP by 2027, while also investing an additional £1.6 billion in its modern industrial strategy.
And it is needed, demonstrated by the well-documented demise of the Bloodhound SSC project earlier this month, which saw a UK engineering company try to build a car that could reach more than 1,000mph. The company saw its dream scuppered after it went into administration, due to £25 million needed for the final stages of R&D failing to materialise.
What are R&D Tax Credits?
The UK Government is aware that companies like Bloodhound SSC need help to push the limits of both research and development. And it knows that Britain is world-renowned for being a force in innovation and research. However, innovation is not cheap, so back in 2000 they introduced R&D tax credits.
These tax credits were put in place to encourage innovation in UK companies, in order to ensure they can compete with the biggest global superpowers. A staggering £21.4bn has been claimed in tax relief since 2000, in the form of 240,000 claims R&D tax claims.
Paired with special funding, grants, and various other hand-outs, R&D tax credits now help businesses put money into experimentation, research and development, without having to worry about the cost of any losses. They work by either reducing a company’s liability to corporation tax or by making a direct payment to the company.
These tax credits can help companies of various sizes across different industries take on new innovations that can get new products onto the market, or re-invent existing products to make them more efficient.
Is the issue lack of knowledge?
One of the reasons the tax relief is not being claimed is due to the lack of education around the tax break. Experts within the industry believe it has been advertised by the government to UK SMEs poorly.
Many SME business owners are simply unaware of the tax relief, owing to lack of advertisement and promotion.
Some are underclaiming due to a lack of comprehensive understanding about some of the subtle details of the R&D guidelines. In addition to this, some SME owners believe R&D Tax Credits are only available for traditional research sectors.
Many SME owners that we have come across simply think it is too good to be true, and there must be a catch. This is leading to many companies missing out on this legitimate financial reward for their valuable investment within their industry.
Samantha Holloway, CEO of rdtaxcredit.org.uk, commented:
Our figures show that forty six per cent of small business innovators who don’t use government support simply didn’t know it was available in the first place.
R&D stagnating is down to many factors, but this is surely the first one to tackle. Educating business owners that help is out there to invest in research and development.
We would like to see an increase in awareness of R&D tax credits in particular, especially where a small business does not actually have a new-to-market product, but is simply depending on these tax credits to innovate in order to improve productivity.
In addition to this, companies need to better understand the implications of Brexit on R&D tax credits. After Brexit, the UK Government will be free from EU regulation in relation to a subsidy limit, meaning an EU cap will be potentially removed. If this is the case, our prediction is that R&D tax relief would be a massively important element of the UK’s R&D policy, particularly in relation to SMEs.
How can rdtaxcredit.org.uk help?
At rdtaxcredit.org.uk, we understand that beginning to think about claiming R&D Tax Credits may be a little daunting. We want to help you through the process, to ensure you receive the financial reward that the Government wants to give you. Especially in this current climate where every penny counts.
Our expert team of accountants are committed to working with you and your company to provide strategic R&D tax credit advice. We can review your claim and propose new techniques to ensure you claim the maximum amount you are entitled to.
We offer a friendly and professional approach to R&D Tax Credits which includes:
- A free no obligation initial review.
- 100% success rate
- 30 day quick turnaround
We also provide extensive information on our website should you wish to research R&D Tax Credits in further detail. We have information relating to individual industries such as:
- Audio and Visual
- Building Technologies
- Commercial Printing
- Creative Digital and Media
- Food and Beverage
- Manufacturing and Engineering
- Motor Racing
- Software Development
- Web Development
If you would like to contact one of our experts for free initial advice, complete the quick enquiry form to receive a no-obligation review of your R&D Tax Relief claim.