Research and Development tax credit claims hit record high, but expert warns Welsh businesses are not claiming all they could be

According to recently released HMRC statistics*, Research and Development (R&D) tax credit claims have reached £7.4bn. So far, the total number of R&D claims made by October 2021 in respect of 2019/20 has increased by 19% year on year and sits at 85,900 with SMEs accounting for the majority of claimants.

However, despite this figure having increased year on year, the number of SME claims submitted by companies in Wales for 2019/20 was just below 5,000, with around £200million of benefits being claimed. These figures are substantially lower than for most other regions of the UK.

R&D tax relief enables businesses carrying out qualifying R&D activities to claim an extra corporation tax deduction for certain qualifying expenditure and companies with tax losses can surrender those losses for a cash repayment.

Chris Dale, Director of Tax for Azets Wales commented: “Research & Development relief is available to companies in all industry sectors, with the key to claiming being that the company is seeking technological/scientific advancements in services, products or processes through the resolution of technological or scientific uncertainties. This is something that a lot of industries have not made the most of as companies are not fully aware of the types of activities that could qualify. Most recently, for example, we’ve supported a range of previously unaware businesses to claim upwards of £2m in benefit, including those in the agricultural sector, restaurants and pubs trade, professional sports clubs and garden centres.

Wales is still lagging behind when compared to other UK regions and so there is more to be done in terms of making companies in Wales aware of the costs that can be claimed and the resulting benefit.”

Small and Medium-sized Enterprises (SMEs) can claim relief for 230% of their qualifying R&D expenditure under the R&D SME scheme. Whereas larger companies can take advantage of the Research and Development Expenditure Credit (RDEC) scheme, which offers a taxable credit at 13% of qualifying R&D expenditure. The level of relief available depends on which scheme a company falls within.