Is innovation on the decline?

UK businesses are making fewer claims for research and development funding, according to the latest figures released by HMRC.

Analysis by innovation funding specialists MPA Group has revealed that UK businesses made eight per cent fewer claims in the 2016-2017 financial year than in 2015-16 – the first ever year where R&D tax credit claims have seen a decline. The number of claims dropped by over 3,000, from 42,870 to 39,465, with the same pattern seen in every UK region.

Consequently, the amount of Corporation Tax relief handed out by the government for both the SME and RDEC schemes also fell with the value claimed by innovating companies decreasing by 6%. In 2016-17, £3.41bn was claimed in R&D tax credits – £230m less than the previous year.

Of this £3.41bn, nearly a third (29%) was received by businesses based in London, with companies in the capital claiming £1bn of funding.

However, it is Northern Ireland which is home to the highest relative number of innovative companies. According to the Office for National Statistics, there are over 60,000 active enterprises in the country and on average one R&D tax credits claim was made per 51 businesses, a better rate than any other area of the UK.

The North of England also fares well, with the North East (one claim per 55 businesses) and North West (one claim per 69) featuring second and third on the list respectively.

Despite making the most R&D tax credit claims and claiming the highest value, London is only the 9thmost innovative region based on these criteria. Its 7,770 R&D tax credit claims were spread between over 600,000 active enterprises, meaning there was one claim per 78 businesses. Only Wales and Scotland had worse ratios.

The top 10 regions with the best business to R&D tax credit claim ratio:

1) Northern Ireland – one claim per 51 businesses

2) North East – one claim per 55 businesses

3) North West – one claim per 69 businesses

= West Midlands – one claim per 69 businesses

5) South East – one claim per 71 businesses

6) Yorkshire and Humber – one claim per 75 businesses

7) East of England – one claim per 76 businesses

8) South West – one claim per 77 businesses

9) East Midlands – one per 78 businesses

10) London – one claim per 78 businesses

The government has ambitious plans to raise R&D investment to 2.4% of GDP by 2027, but in order to achieve this goal, it needs to raise awareness of the initiative.

In 2017, The Department for Business, Energy and Industrial Strategy identified 133,000 UK businesses that are ‘innovation active’. Fewer than one in five (19%) of these claimed R&D tax credit relief, meaning that 81% of qualifying businesses potentially missed out on £55,000 funding, based on the average SME claim value.

Nigel Urquhart, senior technical analyst at MPA Group, said: “It’s concerning to see that so many UK businesses are failing to take advantage of the R&D Tax Credit scheme, especially as we know that UK companies are world-leaders for innovation, who should be allowing the government to reward them for their pioneering work.

“The reported decline highlights the reality that UK businesses are not well informed on the benefits of an R&D tax credit claim. Potentially costing these innovative companies, and the UK economy, billions of pounds every year, it is clear that work needs to be done to spread the message.”

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