West Midlands SMEs still missing out on £billions of R&D Tax Credits

Despite being among the UK’s most innovative businesses, West Midlands SMEs are missing out on a share of around £4bn of unclaimed tax, according to HMRC figures. R&D Tax Credits expert Ian Batkin, partner at Luvo Financial, explains.

Innovative SMEs investing in R&D stand to reclaim an average of £50,000, but West Midlands businesses are lagging behind the national average by more than £10,000, according to the government’s latest Research and Development Tax Credit Statistics Report (10 October 2019).

Average claim value by UK SME’s in 2016/17 was approximately £50,000; compared with this, the average claims by West Midlands-based businesses was lower at £39,000, meaning they are claiming over £10,000 less than SME’s elsewhere in the UK.

HMRC’s latest statistics reveal that claims by West Midlands SMEs have increased by around 15% year-on-year, with average claim values up 3%. But these are still 20% lower than the national average claim value, meaning even more West Midlands-based companies could, and should, claim more.

The Midlands is home to around 100,000 SMEs that have the potential to claim R&D Tax Credits but aren’t doing so. By not claiming, they are leaving around £4bn of unclaimed tax on the HMRC table, despite each of them being legally and legitimately entitled to it. Instead, they are paying a combination of more Corporation Tax than they need, and recovering less Payable Cash Credits than what they are entitled to.

Across the UK, over 300,000 R&D Tax Credits scheme claims have been made since it was launched in 2000, around £27bn has been paid to UK SMEs in tax relief, and the average value of an individual SME claim now stands at £50,000.

Whilst the number of claims has broadly increased year-on-year, it is still clear that in total significantly less than 10% of all eligible SMEs are claiming; this means at least 90% are simply missing out on reward and financial support for their R&D and innovation. With the average claim now worth £50,000, a considerable amount of money that could be used for the next stage or ongoing investment in their product or service development activities has instead been left unclaimed.

The market and/or sector that the SMEs operate within is irrelevant, as the latest figures confirm. More than 60% of claims have been made by companies in the manufacturing, professional, scientific and technical, and information and communications sectors; figures show a rise of 15% in first time applicants. There were claims from SMEs in agriculture, transport and storage, financial and insurance, education, health and social work, as well as those in the arts, entertainment and recreation sectors. This certainly proves that it’s what you do that matters, as far as claiming R&D Tax Credits is concerned.

The steady 20% year-on-year increase in R&D Tax claims could be down to the government’s more recent changes to the scheme, specifically the removal in April 2012 of the £10k minimum expenditure level; the increase in the Payable Cash Credit amount from 11% to 14.5% in April 2014; and the increase in the enhanced expenditure multiplier from 125% to 130% in April 2015.

It may also be that more companies are at last realising that the R&D Tax Credits scheme is a very worthwhile incentive that can be confidently claimed, providing they ‘tick the eligibility boxes’ and present a claim in the correct way.

However, the vast majority of SMEs continue to be unaware of the scheme. Whilst it is excellent news that the number of claimants has continued to increase, a huge number of SME’s still aren’t claiming and are consequently missing out on significant amounts of financial reward and support. As independent Midlands-based R&D Tax specialists, we are committed to raising awareness of the R&D Tax Credits scheme and the cash available to support continued innovation amongst the region’s SMEs, and to encouraging more SMEs to claim.

Luvo Financial was founded in 2015 by its Partners Ian Batkin and Vicki White, both qualified accountants. The firm provides support for Accountants making R&D Tax Credits claims for clients and also works extensively with SMEs in a wide variety of industry and market sectors, from software development and IT, to engineering and manufacturing, and indeed a number of other sectors.

For more information visit: www.luvofinancial.co.uk,Tel: 01902 244210, E: enquiries@luvofinancial.co.uk