The Midlands is an ever-growing powerhouse of manufacturing and advanced engineering. Home to manufacturing trailblazers; the creation of HS2 has required the best of the region’s skilled workers to come together and innovate. In fact, 20% of the UK’s manufacturing output comes from the region, from the likes of world-leaders such as National Grid, JCB and Jaguar Land Rover.
The West Midlands has also been named the country’s fastest-growing tech sector, with the region’s thriving digital industries expected to create an extra 52,000 jobs by the end of 2025. What’s more, as part of the government’s ambition to ‘level up’ the whole of the UK and achieve Net Zero by 2050, the West Midlands’ long-established automotive hub of excellence will play a vital part in supporting supply chains and employment.
The Autumn Budget 2021, announced last week by Rishi Sunak, stated there will be tech investment grants worth £800m to encourage overseas companies to invest in the production of electric vehicles in the Midlands and north-east England. Battery-powered vehicles and other low carbon technologies will also be critical in achieving Net Zero. With new product development and ingenious ways of amending existing products and projects comes research and development. Where there is research and development there is often eligibility for research and development (R&D) tax credits.
Here, Access2Funding’s tax specialist Craig Flynn explains how innovative businesses in the region can access funding through HMRC’s R&D tax relief scheme, which can go towards growing a business, hiring new talent, kickstarting new projects and developing new products.
What are R&D tax credits?
The R&D Tax Relief Scheme is a government initiative, created to reward and encourage UK companies to invest in innovation. Businesses in the Midlands could be sitting on thousands of pounds in hidden funds, simply for carrying out their day-to-day tasks.
This scheme is often underutilised and misunderstood. To put it simply, to be eligible to claim R&D tax credits, businesses must be UK-registered and liable to pay corporation tax. SMEs must have under 500 employees and either under €100m turnover or €86m on the balance sheet. R&D is assessed in Euros rather than GDP as it was written by the European Commission, but is not linked to EU funding.
How can R&D tax credits benefit your business?
If you are identified as qualifying for R&D tax credits, you can either receive a cash payment or a reduction in your corporation tax bill. Here are some benefits of the government scheme:
- You can retrospectively claim two fiscal years, helping to create a more sustainable business model.
- You are more likely to further in innovation, along with the sustainability and growth of your business including facilities, marketing and recruitment.
- The scheme is accessible to an array of industry sectors – even unsuccessful projects or loss-making businesses may qualify.
- There are no upfront or hidden costs, with fees only paid upon the success of a claim.
HMRC’s R&D report statistics
HMRC’s latest R&D tax relief report shows that businesses in the Midlands claimed £990 million of R&D tax credits, with a total of 13,395 claims made.
Breaking it down further, there were 7,885 claims made in the West Midlands, totalling £635 million. The report shows a 10% increase in the total amount claimed by West Midlands businesses, with a 13% increase in the number of claims, from tax year 18/19 to 19/20. Since 14/15, there has been a 156% increase in the number of claims.
For the East Midlands, there were 5,510 claims made, totalling £355 million. The report shows a 22% increase in the total amount claimed by East Midlands businesses, with a 13% increase in the number of claims, from tax year 18/19 to 19/20. Since 14/15, there has been a 144% increase in the number of claims.
The average R&D claim value in the West Midlands was £81,000, and in the East Midlands £64,000.
According to the report, the sectors where the highest number of R&D claims across the UK were made are Information and Communication (22%), Manufacturing (22%) and Professional, Scientific and Technical (19%) sectors, accounting for 20%, 25% and 24% of the total amount claimed, respectively.
Are you eligible for R&D tax credits?
Some key questions will be asked by an R&D tax specialist to establish your business’s eligibility for R&D tax credits. These include the following:
- Is your business a UK Limited company, liable to pay corporation tax?
- Did one or more of your business projects encounter scientific or technological uncertainties?
- Did the business spend money trying to resolve these uncertainties during the last two financial years?
- In attempting to resolve these uncertainties, did the project (s) seek to achieve an advance within an industry?
Innovation is a hot topic, now more than ever.
The government is striving for the UK to be a global hub for innovation by 2035, making now a perfect time for businesses to adapt, embrace and encourage research and development in the workplace. The UK Innovation Strategy lays out four pillars in its plans for spiralling business innovation – each with the overarching aim of placing innovation at the heart of everything this nation does.
As quoted by Rishi Sunak in the Autumn Budget 2021, “Innovation comes from the imagination, drive and risk-taking of business” and “We must invent, discover and create the technologies that make tomorrow”.
In this budget it was also announced that the government is expanding the scope of R&D tax relief to include cloud computing and data costs. Given the Midlands region’s booming tech sector, this is great news for many businesses.
To find out more about R&D tax credits and how they can help your business, visit www.access2funding.co.uk or email email@example.com and one of our team will be more than happy to discuss your eligibility.