Innovation In The UK: HMRC R&D Tax Relief Schemes And Patent Box Boosts Business Revenue And Innovative Spending

By citiesabc resources - Dec 16, 2020

  • Large companies stimulated to spend between £5.8bn and £6.5bn on innovation
  • Increase in patents filed after first year of claim
  • SME claimants on average have ten times revenue size compared to non-claimants
  • Firms using the Patent Box Scheme display a 10% increase in capital investment

The R&D tax relief schemes and R&D expenditure credit (RDEC) have driven greater innovation in the UK, according to analysis by HMRC. A review of these schemes, as well as the Patent Box, highlighted that there were both positive direct and indirect impacts on business for those that utilised the schemes whilst also spurring on innovation.

For companies that applied for the RDEC in 2017/18, the overall cost of the scheme claims was £2.4 billion, which HMRC believes could have stimulated between £5.8bn and £6.5bn of additional investment in R&D initiatives. The RDEC scheme is aimed at companies with more than 500 employees in the UK and replaced the Large Company Scheme in 2016.

The R&D Tax Relief Scheme, which is aimed at SMEs, has also proved to have wider benefits for companies that claim under it. The analysis showed that the total R&D expenditure associated with the scheme for 2015/16 was approximately £6.3 billion. The additionality ratios from HMRC’s workings suggest that, of this, between £1.2 billion and £2.1 billion may have been stimulated by the scheme.

In addition, the analysis showed that there is a link between increased expenditure on R&D and increased turnover. A 1% increase in R&D expenditure on a conservative estimate was linked to a 0.02% increase in revenue in the same year, which does not take into account the longer period that it may take for the R&D project to materialise or translate into a commercial product.

Companies that filed R&D claims also on average have a turnover that is approximately ten times larger than the average for all other businesses in the private sector. The average turnover for claimants was also recorded to have increased between 2010 and 2013.

Businesses with fewer than 250 employees made the most claims, with the average value being £46,527 per business (2015/16). More recent figures from HMRC show that businesses claimed £84,548 on average across the UK in 2017/18. For 2018/19 the average claim value was already at £90,132 in October with months left for applications.

Another mark of the success of both schemes can be seen in the increase in the number of patent applications filed by claimants. The average number of patent applications per business per year increased after their first claim highlighting a link between R&D spend and successful innovation.

Similarly, the relatively new Patent Box policy (2012) has been evaluated by HMRC and found that whilst it may take a year for the policy to have an effect, it did have an impact on investment by a potential 10% increase. Similarly, firms that used the UK Patent Box were more likely to increase their investment in the UK compared to equivalent firms, which is a key aim of the scheme.

Radeep Mathew from leading innovation funding specialist, Leyton UK,  said: “The evaluation of the R&D schemes completed by HMRC shows that there is real value in these schemes, which go far beyond encouraging innovation. An increase in revenue, patents filed and the benefit of recouping cash back into the business are all added benefits. In the current climate, these benefits have even more to offer businesses as many feel the squeeze. These schemes can offer those struggling a vital lifeline. We hope this analysis will encourage businesses of all size and sectors to utilise the resources available to them."

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