New R&D data shows manufacturing as a top tax relief claimer with London and SE leading

Last week the government released its annual R&D tax relief data, based on R&D Tax Credit claims submitted to HMRC by UK companies up until the 30th April 2021. It’s unprecedented times, with the triple challenges of economic instability, Brexit and the fallout from Covid. But despite all that, UK R&D appears to be standing firm.

The report makes for interesting reading, with manufacturing (closely followed by IT and comms) top of the leader board for claims. This is particularly the case for companies based in London and the South East.

Around 2.7 million people are employed in the manufacturing sector alone in the UK, according to The Manufacturer. The sector also contributes 11% of GVA, accounting for 69% of business research and development (R&D) and providing 13% of business investment.

The IT and communications sector wasn’t too far behind, submitting 6,080 claims for R&D Tax Credits in London alone.

In manufacturing particularly though, the numbers are impressive with claim costs totalling in excess of £1.8 billion - £550 million of which came from London and the South East alone.

Manufacturing R&D projects

The manufacturing sector encompasses a huge number of business areas and specialisms, making innovation a daily occurrence. From developing new systems, technologies, processes or products to tightening up supply chains, it’s a sector that’s driven by performance, yield and efficiency.

There are however certain types of work that commonly occurs in manufacturing that’s almost guaranteed to bring about an R&D Tax Credits claim. Examples include:

• Developing sustainable packaging
• Turning previously manual processes into digitised, automated operations
• Replacing older backend systems and integrating newer technologies
• Developing, trialling and testing new products, services and processes
• Designing specialist tools to meet high-specification product designs
• Modifying existing production processes to comply with changing regulations
• Enhancing productivity by undertaking mechanical or digital modifications to production lines

Britain on the world stage

The UK has long been recognised across the world for its ambitious, high-value innovation. Not only has this enabled both domestic and global demand to be met but has also opened doors that significantly benefit the broader UK economy.

Government recognition of the importance of R&D has certainly helped, with attractive incentives like R&D Tax Credits encouraging investment. However, it’s essential the UK maintains its global competitiveness with a progressive business tax structure. Capital allowances must also continue to support firms in buying machinery, equipment and plant. In future the patent box could also be extended, perhaps so that a wider range of Intellectual Property is included.

The ‘levelling up’ agenda

99% of all UK businesses are SMEs, far and away making up the most R&D tax relief claims with 76,225 applications compared to just 4,370 RDEC claims (usually reserved for larger companies). But what the data does show it there’s still something of a north-south divide, not just in manufacturing, IT and comms claims but across the board.

Previous statistics from the year prior show 60% of R&D tax relief claims came from London and the South East. The South as a whole submitted 22,040 claims, with £1,515 million administered to Southern-based companies ready to plough back into innovation projects.

Also looking at previous data trends, Northern areas of the UK only submitted 16,185 R&D tax claims, generating just £820 million to fund further innovative work. Companies in Hull, for instance, submitted just 30 claims in 2018-19, with bigger cities like York and Blackpool only making 155 and 35 claims respectively.

As for the latest stats for 2019-2020 we can see R&D Tax Credits claims have fortunately increased both in the North and the South, with 29,950 made in London and the South East and 22,600 across the North. Blackpool and York did better this time too, with 60 and 280 claims respectively. Having said that, the likes of Hartlepool and North Lincolnshire have lagged, with 60 and 75 total claims respectively.

The levelling up agenda, launched by government as a way of tackling the divide, promises further support with R&D incentives focussed on the North. Although this is a welcomed start, there’s still a sizeable gap to close.

If the agenda is to stand any kind of a fighting chance, investment into advanced manufacturing, particularly in northern areas, is key. Only then will the full potential of UK manufacturing unlock, increasing competitiveness on the global stage. This will also require investment in long-established UK manufacturing centres of excellence, including Clyde shipyards and chemicals in the Northeast and automotive in the West Midlands.

Manufacturing and Net Zero

Climate change is a hotly debated topic right now. With the government’s Net Zero strategy now underway, the decarbonisation of both products and processes is something that sits firmly within the manufacturing sphere. However, collaboration between organisations - both business and academic - it vital in meeting the Net Zero target.

The fact is, the entire manufacturing industry is incredibly energy-intensive. The UK therefore must continue its focus on emerging low-carbon opportunities, including advancing wind and battery technology and hydrogen power. Indeed, companies looking to invest in the UK from outside will be watching on with interest, especially as Britain’s electricity prices are much higher than our EU competitors.

“Manufacturing, as well as IT and communications, are industries that are strongly innovative simply by their very nature. It will always therefore be a huge beneficiary of R&D tax relief, and this latest data supports this,” said Barrie Dowsett, CEO of R&D tax claims specialists Myriad Associates.

“The key message is that R&D tax relief is a vital tool in sustainable economic growth; it isn’t just the preserve of large companies breaking the innovation mould. It’s also very much available to smaller companies too, across all industries, with up to 33% of eligible R&D costs reclaimable.”

Although the R&D Tax Credits scheme is incredibly generous, making a successful, fully maximised claim is complex. It’s for this reason that many companies use the services of an experienced R&D tax consultancy like Myriad Associates, ensuring first and foremost that your project qualifies under HMRC's strict criteria for R&D tax credits.

Find out why reaching out to an R&D tax consultancy makes sense or call us on 0207 118 6045. Alternatively, feel free to send us a message and a member of our friendly team will call you back.