Government’s £18bn cash injection into R&D set to fuel economic growth
R&D Tax Credits expert Ian Batkin, partner at Luvo Financial, examines the re-elected Tory government’s pledge to double R&D spending to £18bn over the next five years.
The recently re-elected Conservative government has pledged to double R&D spending to £18billion over the course of the next five years in what it has said is a step to ’maximise competitive advantage and fuel a new wave of economic growth’.
In part, this is a consequence of UK investment in R&D recently revealed as just 1.7% of national GDP, compared with and far below the OECD average of 2.4%.
This planned financial boost by the government is good news for the region’s SMEs, who should be encouraged to maintain and even boost their investment in innovation, developing new products and services that can deliver legitimate financial reward through the government’s established R&D Tax Credits scheme.
Not only does the government’s pledge at last signal tangible government action, it is also a step the CBI has been calling for, as highlighted in a recent report that urged Westminster to look to provide ‘further incentivisation to commercialise the brilliant ideas that come from the UK’s research base, that is turning innovative ideas from concept into reality’.
Yet, claims for R&D Tax Credits continue to be sluggish, particularly from businesses outside of London, the South East and East of England where over half (52%) of the UK’s R&D spend occurs.
Here in the West Midlands especially, businesses are lagging behind the national average, according to the government’s latest Research and Development Tax Credit Statistics Report (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 businesses are on average more than £10,000, lower at £39,000.
The CBI believes that not enough R&D is happening across the UK and has noted that ‘underperforming regions risk holding back the UK’s national R&D performance and with that progress on regional competitiveness and growth’.
To help tackle this underperformance, the CBI is calling for a three-pronged approach by the government:
- Set out a roadmap for raising UK R&D activity within its first year in office;
- Kickstart innovation activity across the UK with a network of new so-called ‘catapult quarters’, encouraging business to cluster / co-locate and collaborate;
- Establish robust methods for measuring impact and success.
The Budget on 11th March will hopefully begin to make it clear how this key government aim will start to be achieved, but increasing the Large Company RDEC rate from 12% to 13% has been widely muted and increasing the SME enhancement from 130% to maybe 150%, seems the most obvious way of encouraging SME’s to invest further in R&D (and would provide 28.5p recompense for each £1 invested).
In the wake of Brexit and with the UK now out of the EU, EU funding of UK businesses’ R&D is likely to dry-up, so more businesses will presumably turn to claiming R&D Tax Credits to provide recompense for recently undertaken R&D and/or provide funding for further / continuing investment.
Now is an even better time to claim R&D Tax Credits
It’s still surprising that less than 10% of SME’s who could claim R&D Tax Credits are currently doing so and this is despite the fact that the average tax saving / recovery by SME’s is about £50,000 per claim.
SMEs must realise that their market and/or sector is irrelevant to eligibility. Whilst over 60% of claims have been made by companies in the manufacturing, professional, scientific and technical, information and communications sectors, SMEs in agriculture, transport and storage, financial and insurance, education, health and social work, the arts, entertainment and recreation sectors are all eligible to claim.
However, the vast majority of SMEs continue to be unaware of the R&D Tax Credits scheme, and a huge number of SME’s still aren’t claiming. As independent West Midlands-based R&D Tax specialists, Luvo Financial is 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 SME’s to claim.
For more information visit: www.luvofinancial.co.uk,Tel: 01902 244210, E: enquiries@luvofinancial.co.uk
