Member Article

North West ‘under-claiming’ for R&D tax credits

The latest figures from HM Revenue and Customs have revealed that small and medium sized business in the North West are lagging behind other UK regions when it comes to the amount they are claiming back from research and development tax breaks.

The incentives are designed to encourage greater R&D spending and, in turn, greater investment in innovation. They work by reducing a company’s tax bill based on a percentage of the company’s allowable R&D expenditure. Loss making companies can also surrender tax losses for a cash refund.

In the latest year for which figures are available, 2011-12, the number of claims for R&D tax credits rose in the UK from the previous year by 16.5% to 12,190, representing £1.2 billion of tax support, based on an £11.9 billion of R&D expenditure.

North West SMEs made 995 claims in the year under review – behind the South East (1,850), London (1,650) and the East of England (1,035). Local SMEs did however make more claims than those in the West Midlands (820), the South West (810), Yorkshire and The Humber (695) and the East Midlands (630). The North East region was one of the lowest claimants, with only 325 claims. Scotland fared better – (585) than Wales (285) and Northern Ireland (190).

By value, the average cash benefit claimed by a North West SME was £29,000 – well behind London (£61,000); the East of England (£56,000); the South East (£49,000); Scotland (£41,000). Other regions with the lowest average claims include Yorkshire and the Humber (£27,000); Wales (£28,000) and the West Midlands (£28,000).

Of the £1.2 billion tax support, only £420 million was paid out to SMEs with £758 million being paid to larger enterprises. Only 4% of the large enterprises are located in the North West, with London and the South East combined taking a 63% share.

Ian Rowland, the Manchester-based head of Grant Thornton’s new national Innovation Group tax services to companies involved in technology and science across the North of England and Scotland, commented:

“These HMRC figures paint a very realistic and plausible picture of the state of innovation in the North West. In the grand scheme of things the region’s figures might not look too bad for SMEs.

“But places like Manchester and Liverpool increasingly prides themselves on technology and innovation – so it would be encouraging to see the figures for the number of local companies rise. The value of the claims also needs to go up. There’s a direct relationship between R&D spend and growth based on innovation.

“Recent changes to the R&D relief have made it even more valuable for SMEs to claim, and for the first time loss making large enterprises can also claim a cash refund for R&D spend. Also, the recent introduction of the Patent Box, with an effective 10% tax rate, makes now the best time ever for local companies to review the cash breaks that are available.”

This was posted in Bdaily's Members' News section by Simon Malia .