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HMRC announce their R&D and Patent Box Statistics 2020

Have more UK companies benefited from Patent Box and R&D Tax Credits?

On 30 September 2021, HMRC published its up-to-date R&D and Patent Box statistics covering the 12-month period ended March 2020.

The total amount of support claimed through R&D schemes (including cash credits & tax deductions) is estimated to be £7.4 billion; comprised of £4.4 billion through the SME regime, and £3.1 billion via RDEC.

In terms of Patent Box, 1,405 companies claimed a total of £1.129 billion in tax relief over the period, with large companies receiving approximately 92% of the total benefit (large companies represent just 28% of all companies that made claims).

 

R&D:

The year ended March 2020 saw a significant increase in the amount of qualifying R&D expenditure across the majority of UK sectors, reaching an aggregate £47.5 billion of qualifying spend identified. This is a 15% upsurge based on prior year figures. In parallel, the total number of R&D claims grew comparably to 85,900, a continuation of the unmitigated year-on-year growth trajectory of R&D claims since 2015, and an increase on the previous year of 16%.

The 85,900 R&D claims were made up of 76,225 “Small or Medium-sized (SME) scheme” claims and 9,675 “Research and Development Expenditure Credit (RDEC) scheme” claims. For the SME scheme, this represents a 16% increase on the previous year. Whereas, for the RDEC scheme, this is a more modest growth of 12%.

Although the total number of companies claiming R&D tax relief has continued to rise, the UK government is keen to streamline the regime so that it remains accessible primarily to those companies that best meet the R&D criteria. For example, HMRC has recently released measures to prevent abuse of the R&D tax relief scheme for SMEs through initiatives such as the introduction of the PAYE NIC cap.

Despite this, the UK Government has also sought to widen the scope of qualifying costs to ensure that the regime remains agile and responsive to changes within the UK economy. In the recent Autumn Budget, it was announced that the scope for qualifying expenditure would also widen to include data and cloud computing costs.

Further to this, the UK Government has also stated its intention to refocus R&D tax relief on companies that conduct their research activities within the UK rather than overseas. It has been announced that such reforms will take effect from April 2023.

The below chart shows the R&D Tax Credits claimed by industry sector:

Patent Box:

The final figures for the period 2018/19 illustrate an overall increase in the total number of companies claiming tax relief under the Patent Box scheme. In all, 1,405 companies sought tax relief under Patent Box: approximately an 7.6% increase on the previous tax year (1,305 in 2017/18). This indicates a continuation of the year-on-year increase in Patent Box usage observed across all previous tax periods since 2013.

The aggregate value of corporate tax relief provided for by the Patent Box scheme increased from £1.1 billion in 2017/18 to £1.13 billion in 2018/19. This is equivalent to a 2.5% growth rate, which is considerably less than the aforementioned 7.6% growth in the total number of claimant companies, and is indicative of the greater use of the incentive.

The average tax relief granted to a large company was £2.6m; while, for SMEs, it was just £84,000. Despite accounting for a mere 28% of claimants, large companies received around 92% of the tax relief granted via Patent Box. All other non-large firms therefore received just 8% of the £1.13 billion tax relief provided for by Patent Box in the tax year 2018/19.

 

Provisional statistics for the next tax year (2019-20) predict that the total number claims will likely fall to 1,370, a 2.5% decline on the previous year. Although, it is also true that the projected total value of claims is still likely to trend upwards towards £1.17 billion, a 4.1% increase.

Half of the Patent Box claims related to companies within the “manufacturing sector”, including pharmaceuticals, and in all, they accounted for 32% of the total relief granted. In addition, the “Professional, Scientific, and Technical” sector accounted for a further 26% of the total relief claimed. Taken together, these two sectors made up the majority of both the number of companies claiming and the total amount of relief received. For the tax year 2019/20, current HMRC projections expect this to remain unchanged.

(There are 755 claims in the manufacturing sector (including Pharmaceuticals) claiming an average of half a million pounds each).

In 2019, the UK had 641,887 patents in force, suggesting there may be scope for additional companies to claim further the Patent Box relief, recognising that there are a number of other determining factors such as a company’s ability to meet the qualification requirements or their taxable profits/losses positions.

With Corporation Tax increasing to 25% in 2023, the incentive for companies to use the Patent Box scheme is likely to increase. However, to do this, companies must first obtain granted patents.

If you are interesting to find out whether you have got patentable technology and how to turn that into a granted patent that will allow you to claim Patent Box tax relief, or you are interested in making robust well supported R&D tax claims, please contact us.

Statistics and analysis provided by Gov.uk:

The information contained in this article is intended to provide general information only and is not an exhaustive treatment of the subjects. Accordingly, the information in this publication does not constitute accounting, tax, legal, investment, consulting or other professional advice or services. Before making any decision or taking any action based on the information contained in the publication, you should consult a qualified professional advisor.

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