Keeping the research readies

Posted on 6 Jan 2010 by The Manufacturer

HM Revenue & Customs has released data which shows how many companies have claimed under its research and development tax credit scheme since its inception at the beginning of last decade.

The R&D scheme was established in 2000 to allow companies to claim some of the costs of their research and development back against their tax bill.

Based on all claims received up to September last year, there were 7,670 claims spread among 7,450 for the financial year 2007-08. This compares with just 1,860 claims in the first year of the scheme.

When the scheme was first introduced it was only open to SME companies – those with fewer than 250 employees and a turnover of no more than €50m. Companies meeting these criteria could claim for 150 per cent of their qualifying expenditure on R&D. Large companies were added in 2002 and could from then claim for up to 125 per cent of qualifying expenditure. In 2008 the thresholds were raised to 175 per cent and 130 per cent for SMEs and large companies respectively. At the same time, the conditions that stipulate what constitutes as an SME was changed so that companies with under 500 employees and a turnover of €100m could qualify under the SME scheme.

In 2007/08, 5,930 claims were received under the SME scheme and 1,960 under the large company scheme, including some claiming under both. Ten claims were received under the Vaccines Research Relief scheme – a further element of the scheme which allows a company of any size to claim up to €7.5m of their costs of attempting to find vaccines for major diseases.

The total number of companies that have claimed in each finial year since the inception of the scheme are:

2000-01 – 1,780
2001-02 – 3,270
2002-03 – 5,110
2003-04 – 5,950
2004-05 – 6,310
2005-06 – 6,120
2006-07 – 6,560
2007-08 – 7,450

On an accounting period basis, the HRMC estimates that cost of support under the SME scheme has increased from £70 million in 2000-01 to £250 million in 2007-08. The cost of support claimed under the large company scheme has risen from £200 million since its introduction in 2002-03 to £530 million in 2007-08.

The Confederation of British Industry has continually lobbied government for the continuation and even extension of the R&D tax credit scheme. In one of its surveys it found 37 per cent of companies had stepped up R&D because of the credit and three quarters of companies said the credit had helped directly or indirectly to keep their R&D investment in the UK rather than move it abroad.

Click here for an article by TM editor Will Stirling which explores the sometimes grey area of what does and does not constitute research and development in the understanding of the powers that be.