Month: January 2022

HRMC recently released its latest R&D tax credit statistics, including all the applications submitted up to the year ending March 2020 under the Small and Medium Enterprise (SME) and large company (RDEC) incentives. The information included in the report offers an overview of the progress of the Government plan to reinforce the UK leadership in research and the innovation of the country’s economy and highlights opportunities for companies that haven’t benefited from the incentive yet.

COVID-19 has certainly slowed down the process and it will be necessary to wait for the following HMRC publication to evaluate the real impact of the pandemic on the R&D numbers.

However, the Government is confident in considering R&D as the key to reinventing many businesses in response to the COVID-19 crisis by embracing science and progress to build a brighter future for the nation.

The following table highlights some of the key points emerging from the report:

R&D tax credit relief overview

The total number of R&D applications for the year ending March 2020 is estimated to reach 85,900, registering an increase of 16% from the previous year. The numbers are expected to increase due to the retrospective nature of the incentive, which will enable companies to make an application for the year ending March 2020 until March 2022.

SME applications account for almost 89% of the total with an annual growth of 16%, reinforcing their role as the main drivers of general growth in applications submitted. A further breakdown of the SMEs numbers indicates that 38,050 claims are purely for a Corporation Tax liability deduction, whereas 38,175 include a payable tax credit.

Under the RDEC incentive, 4,370 large companies benefit from the relief and a further 5,305 SMEs qualified for the RDEC scheme as subcontractors.

Overall, the RDEC scheme has seen a growth of 12% compared to the previous year.

Number of claims for R&D tax credits by scheme, 2014-15 to 2019-20

Map of the R&D applications submitted by region

Despite the presence of numerous innovative companies, many regions show a low number of submitted applications, meaning that there is still a lack of awareness in these areas. On the contrary, companies in Greater  London seem to be familiar with the R&D tax relief showing the highest number of applications submitted in the country,    over 17,000 (20% of the total number) and around £2.3 million claimed (30% of the total amount). The Southeast shows the second-highest number of applications submitted (11% of the total), whereas the North East (slightly over 3% of the total) highlights an area that may not be fully benefitting from the scheme in comparison to the rest of the country.

Number of R&D tax credit claims by region of company registered address, 2019-20

R&D total amount claimed by sector

From the figure below there is no surprise in seeing the Information and Communication, Manufacturing and Professional, Scientific and Technical sectors showing the highest amount of R&D tax credit relief claimed. However, this should not discourage other sectors to explore the incentive. Based on our experiences, many companies miss the opportunity to recover the money invested in innovative projects because they misunderstand the concept of R&D, strictly associating it with white coats and scientific departments, while instead, the definition provided by HRMC is much broader than that.

Amount of R&D tax credits claimed by industry sector, 2019-20 (£ million)

Summary

Overall, the trend of growing investment in R&D remains uninterrupted despite the impact of the pandemic. The latest figures shine an optimistic light on the possibility of achieving the Government’s goal of reaching a total R&D expenditure of 2.4% of GDP by 2027. In this context SME’s play a key role, which is confirmed once again by the number of first applications submitted.

Number of first time applications by scheme, 2014-15 to 2018-19

The UK beer market contributes to 16.3% of the whole European market value, second only to Germany. Although many companies in the sector are investing in innovative brewing processes and the development of new products, only a handful are recovering everything available to them through the R&D tax credit incentive.

How is the UK beer market recovering after the pandemic?

It’s safe to say we like our beer! However, as reported to Mintel, Covid-19 heavily impacted beer sales due to the closure of pubs and restaurants. It is estimated the sector will not recover and reach the levels pre Covid-19 until 2024. In addition, the overall consumption of beer in the country is falling – mainly due to the spread of health-conscious attitudes amongst the British population. Consumers are increasingly oriented towards healthier options such as non-alcoholic and low-calorie products (likely in an effort to mitigate the beer belly). These are, in fact, two of the major trends shaping the market, alongside the rising desire for sustainably brewed beer. Particularly, consumers aged 18-24 are concerned about sustainability and tend to prefer sustainable brands over others when it comes to purchasing decisions.

R&D tax credits to implement a sustainable production 

In terms of sustainability, the consumption of water is one of the biggest issues related to the sector. Beer itself is primarily water, which, on average, accounts for 90% of the product’s composition. The consumption of water is not strictly related to the production process only, but also to washing and other operational-related activities involving the brewing process. Although water usage does not hugely impact the breweries’ costs, it does impact the environment, as water scarcity represents one of the major threats for the planet’s future. As such, many breweries in the UK are developing new mechanisms to reduce the consumption of water, and many of the costs associated with this innovation can be recovered under the R&D tax credit incentive – often resulting in a significant cash benefit to the business.

Increasing the use of renewable energy and recyclable packaging are two additional changes that must be implemented in order to make the production of beer a more sustainable process. Various major players within the beer market have started ‘move to zero’ plans, aiming to become powered by 100% renewable energy. Similarly, an increasing number of producers are switching towards recyclable packaging – incentivising the return of empty containers from consumers in order to reduce wastage. As with the reduction of water consumption, activities associates with the reduction of unsustainable energy usage and wastage using innovative technologies and processes can also be recovered under the R&D incentive; importantly, brewers can recover the cost of staff time, consumables (including some ingredient and utility costs) and subcontractors associated with such projects!

However, R&D is not limited to the above. In fact, the process of developing new beers, such as those with unique flavour or aroma profiles, or ever non-alcoholic, gluten free or low-calorie options can qualify as an R&D project.

If you are running a brewery and are wondering whether your activities qualify for R&D, get in touch with one of our experts. We’re always happy to have a quick exploratory chat!