The figures, released by HM Revenue and Customs on June 15, show the number of all small and medium-size enterprises (SMEs) who filed claims for R&D tax credits in the 2009-2010 tax year totals 7,900. Manufacturers make up 2,015, about 25%.
There are about 125,000 SME manufacturers in the UK, according to employers’ group EEF’s 2012 fact card.
Not all manufacturing SMEs would be eligible to claim for an R&D tax credit.
Andrew Johnson, senior economist at EEF, said the more appropriate number to compare this with is 65,000 – the total number of manufacturers who paid corporation tax in 2009-2010. This still leaves just 3% of eligible companies making a claim under the scheme.
The total number of claims for all industry sectors – 7,900 – is very meager compared with the total number of SMEs in the UK, thought to be 4.5 million including the self-employed.
The value of claims were also feeble, considering the number of potentially eligible companies (see second table).
Manufacturers claimed a total of £70 million R&D relief on corporation tax, from a total of £330 million for all SMEs. Large companies claimed more than twice as much, £685m, but in terms of economic value, the SME contribution of UK GDP is greater.
The low claims raise questions about British companies ability to finance R&D at a time when high value manufacturing growth has been so heavily championed by the Government and industry groups.
“We know that Germany spends 2.8% of GDP on R&D and we spend 1.7%,” said Peter Urey, a tax consultant for business advisors MPA. “We know that the EU, who fund tax relief for SMEs, have a 3% goal to help tackle the structural problems facing the region.
Mr Urey said that the low 7,900 total is a sign that either awareness of the R&D tax relief scheme is very low or finance professionals are not bothering to use it. “Is 7,900 companies a fair reflection of the level of inventiveness within our SMEs?” he asks.
“If 3% R&D spend will make a material contribution to our economic recovery then we should be doing more to help SMEs take full advantage of the available incentives,” Urey adds.
Andrew Johnson, senior economist at EEF, agreed that the scheme is heavily undersubscribed, but said “This probably has more to do with lack of awareness and/or complexity in applying for the credit with consultants often claiming 25% of the value of any credit.”
“We would like to see an increase of 60% in the take-up of the SME R&D tax credit scheme by 2015, which was in our Budget submission. The government’s increases to the credit should help with this – but they must do more to raise awareness of the credit and lower the cost of claiming,” he added.
In April, accountancy group PwC warned that claims for R&D tax credits across the UK corporate sector were alarmingly low, and said a “bonanza of unclaimed tax relief was going begging”.
For more information on simplifying R&D tax credits, contact your tax advisor or Peter Urey at MPA, www.thempagroup.co.uk/