Increased Innovation Boosts R&D Tax Credit Claims

As the UK navigates its way through choppy post-COVID waters, an interesting trend has been noted in the country’s corporate spending habits. For the tax year of 2021-22, there has been a marked increase in what companies are spending on innovation. This wave of increased investment has led to a corresponding rise in the tax relief that UK companies are able to claim, Director of Finance reports.

Rise in Innovation Investment

Recent figures courtesy of HM Revenue & Customs (HMRC) revealed that during the 2021-22 tax year, businesses in the UK significantly increased their innovation investment. An impressive total of £7.6 billion was claimed in tax relief, a rise of 11% from the previous tax year, during which investment had understandably fallen due to the ongoing global pandemic.

Increased Research and Development Claims

With the surge in innovation spending, HMRC’s provisional figures indicate that the overall number of R&D tax credit claims rose accordingly. During the 2021-22 tax year, HMRC received a total of 90,315 R&D tax credit claims, which was 5% higher than the preceding year.

Contribution by the SME and RDEC Schemes

The R&D schemes for Small and Medium-Sized Enterprises (SMEs) and Research and Development Expenditure Credit (RDEC) have played a fundamental role in driving this increase. Both schemes have seen a substantial rise in claims. The average value of each claim was recorded at £84,150, marking a 6% increase from the previous year. This spike was primarily due to an average increase of 9% in the SME scheme.

Research and Development Expenditure

The mushrooming claims correspond with £44.1 billion of R&D expenditure. UK companies spent an additional 8% on R&D compared to the previous year, expressing their commitment to innovation-focused initiatives.

A Setback for First-Time SME Scheme Applicants

A continuous decline in first-time applications to the SME scheme has been noted over the years, reaching its peak in 2018-19. The anticipation is this trend may continue due to new legislative changes that have recently come into effect.

A Boost for Larger Companies

On the flip side, larger companies subscribing to the RDEC scheme for the first time have seen a swell in applications. For the 2021-22 tax year, the number of first-time applicants climbed by 14%, with a total of 2,705 applications submitted.

London and South-East UK Dominate Claim Figures

Interestingly, the distribution of claim figures isn’t homogenous over the UK. Most of the claims originate from companies with offices registered in London, accounting for 22% of total claims and 32% of the total amount claimed. South East-registered offices are responsible for 15% of total claims and 18% of the total amount claimed.

Stride in Information & Communication Sector

In terms of industry sectors, Information & Communication, Manufacturing, and the Professional, Scientific & Technical sectors lead the way. Collectively, they make up 62% of total claims and 67% of the total amount claimed for the 2021-22 tax year.

What the Experts Say

Visiativ Tax Director Douglas Reid commented on the provisional figures and expressed optimism about the definitive ones. He remarked, “They show a significant increase of 8% on R&D investment by UK companies which spent over £44 billion on innovation-focused activities. The continued decline in first-time applicants to the SME scheme is noted. However, I am encouraged to see a major rise in first-time RDEC applicants. Overall, these are positive figures which highlight how British businesses are recovering from the impact of Covid and ramping up their investment into innovation.”