SME R&D tax credit claims: progress report

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In 2012 we published The Route to Growth, our take on how Industrial Strategy could lead to a better-balanced economy for the UK. At the time we laid out four key ambitions, which, if achieved would point to an economy on the right track. These were:

1. More companies bringing more products and services to market
2. More globally focused companies choosing to expand in the UK
3. A lower cost of doing business
4. A more productive and flexible labour force

Underlying these ambitions, we had a series of metrics, one of which was released this morning.

As part of our ambition to see more companies bringing products and services to market we wanted to see a 60% increase in the number of companies taking advantage of the SME R&D tax credit. Good progress has been made towards this target.

The number of companies claiming the SME R&D tax credit increased by 95% between 2008/09 and 2012/13.
Strong increase in proportion of companies claiming SME R&D tax credit

Claims for the SME R&D tax credit by financial year, 2008-09 to 2011-12

Source: HMRC

This is the most consistently strong performance against any metric laid out in Route to Growth and it is no coincidence that this is also an area where there has been concerted policy action.

The existing government has done much to boost the attractiveness of the R&D tax credit (for both large and small companies):

  • Large companies' R&D tax credit moved above the line, and rate set at 10%
  • Rate of SMEs' R&D tax credit increased to 225%
  • The rate of the R&D tax credit payable to loss-making SMEs increased from 11% to 14.5% from April 2014. (NB this will not have impacted on the most recent uptake data)

These changes will be encouraging more companies to apply for the tax credit and should support the amount of innovation that companies are able to do.

Also of fundamental importance is the long-term stability that is inherent in the R&D tax credit, which is not the case with most other forms of innovation support. Stability has led to high levels of awareness of the scheme among manufacturers. Our Innovation Monitor survey shows a consistent increase in the proportion of companies aware of – and claiming – the R&D tax credit over time.

The stability of the R&D tax credit is a strong feature of the UK innovation system: given its position within the tax system, the tax credit is less subject to review than items of expenditure such as innovation grants. The tax credit's position within the innovation landscape must be maintained.

Large company claims also on the rise

Just as the number of companies claiming the SME R&D tax credit has increased strongly since 2008/09, the number of companies claiming the large companies' tax credit has grown too, by 29% over the same period, another reflection of the value of long-term stability in this area.


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