No industry has received more R&D Tax Credits this year than manufacturing. But data suggests that manufacturing companies are still leaving millions in relief on the table.
The results are in. For the umpteenth year in a row, manufacturing has topped the charts for R&D Tax Credit claims.
HMRC figures for the 18/19 tax year show manufacturing companies filed 24% of claims and received 28% of relief; more than any other industry.
So far, 13,965 manufacturing businesses have claimed more than £1.4 billion in tax relief, rebates and cash credits. And both figures are expected to rise as more claims are filed and processed.
R&D Tax Relief payouts increased across the board this year, particularly among SMEs which were looking for new sources of capital to offset revenues lost to COVID-19.
Manufacturers continue to churn out claims
The industry has a well-known affection for the R&D Tax Credits scheme. As The Manufacturer noted just a few months ago, “UK manufacturers love R&D tax credits”.
This is no surprise given the many benefits of the scheme, and how passionate UK manufacturing is about R&D generally. In 2018 the industry accounted for an astonishing 65% of the UK’s research and development spending, which translates to roughly £16 billion of investment.
This innovative attitude stretches back throughout manufacturing’s storied history; from the early days of man-powered machinery through to today’s smart factories and advanced robotics that sit at the forefront of science.
These projects are hugely exciting. But we must remember that the R&D Tax Credit scheme doesn’t just reward innovations on the cutting-edge.
The scheme supports a wide range of development work, from the technological leap to the subtle inch forward.
Hundreds of companies are still missing out
It’s important to emphasise this point because government data seems to suggest that many manufacturing companies are not claiming R&D Tax Relief, even though they’re entitled to.
Combined, those businesses are leaving literally hundreds of millions of pounds on the table, which they could use to hire, innovate further, or simply top up their cash reserves to safeguard against COVID-19 and disruptions due to Brexit.
This may sound like a bold claim, but let’s look at the numbers.
Manufacturing companies invested £16 billion in research and development in 2018, according to the House of Commons Library. But HMRC says that manufacturers have claimed R&D Tax Relief on just £11.24 billion worth of development expenditure for the 18/19 tax year.
These figures imply that manufacturing companies are neglecting to claim tax relief on more than £4 billion in research and development investment. Which would mean that around £600 million in government aid is going unclaimed.
I admit, this is a bit of a simplification. The House of Commons and HMRC use different definitions of ‘research & development’, making a like-for-like comparison between the datasets impossible.
Still, these figures illustrate something we encounter on a regular basis: that many manufacturing companies don’t realise that they’re eligible for R&D Tax Credits, and those that do often aren’t claiming their full allowance.
Why are companies underclaiming?
The underclaiming is happening for two reasons.
First, the government doesn’t do a great job of promoting the R&D Tax Credits scheme to qualifying businesses. A lot of companies we speak to have never even heard of R&D Tax Relief, never mind considering whether that they might qualify.
Second, and more importantly, the rules governing the R&D Tax Credits scheme are complex. The scheme’s definition of R&D, on which the eligibility and scope of all claims rests, is both complicated and hard to apply to real-life development work.
Find out for sure
If you’re a UK registered company that’s liable for UK corporation tax, and have conducted some kind of research and development work in the last two years, then you might qualify for R&D Tax Credits.
If you want to find out for sure, the easiest thing to do is speak to a specialist like GrantTree. Our tax and technical experts can give you an initial assessment in just a few minutes.
Don’t leave money on the table. Check your eligibility, and that your claim is maximised, by speaking to GrantTree.