Following the Autumn Statement, the UK’s stance on boosting research and development (R&D) for the next fews years is clear. Chancellor Philip Hammond announced a new £4.7 billion in funding for R&D through the National Productivity Investment Fund (NPIF), and autonomous research suggests uptake of the Government’s R&D tax credit incentive is set to double in the next three years.
While R&D tax credits can only serve to incentivise innovation, a survey of 247 UK business leaders reveals that a lack of awareness and understanding could be preventing growth companies from claiming the credits they deserve.
R&D tax credit consultancy ForrestBrown assessed companies’ appetite for innovation, and barriers affecting decision making. Examining the success of R&D tax credits, the study showed it had allowed SMEs to sustain or, in many cases, advance their innovation efforts. Of those that had claimed, 40 per cent directly increased R&D activity as a result, 62 per cent hired new staff, and 24 per cent reinvested the funds into new manufacturing processes, product development or setting up new offices.
The outcomes suggest that these government-funded incentives are meeting their policy intent to boost research and development in UK businesses. However, more pressingly, one in five business leaders were not aware the incentive existed.
Despite a broad range of R&D activities being eligible for tax credits under the incentive’s rules, most businesses are unclear on what qualifies. This also means that those who are claiming might be claiming far less than they are entitled to. Over a quarter didn’t believe their business engaged in any R&D activity whatsoever.
Even those that had claimed were unclear on the incentive’s rules around permissible R&D activity, with almost half of claimants stating a clearer definition of R&D for tax credit purposes was required from the government.
Despite the scheme’s success, the increase in total number of claims made by SME and large companies alike was much smaller than it was last year, says Simon Brown, founder and MD of ForrestBrown. “We can see quite clearly from the research that a relatively large number of businesses are either not making use of the incentive or under-claiming significantly, which is a missed opportunity to diversify income amid post-Brexit uncertainty that might impact cash flow. For SMEs, the incentive is particularly valuable because payments are made relatively quickly, allowing SMEs to be agile in making decisions that assist their growth.”
According to Brown, a number of businesses the firm works with are told by their advisers that they would not qualify for R&D tax credits. “But based on experience it’s difficult to think that a business investing in innovating their products, processes or services wouldn’t undertake some level of R&D,” he adds.
Serial entrepreneur Mark Mason credits R&D tax incentives as the linchpin for the sale of his award-winning app development company, Mubaloo. Mubaloo was sold in February this year to IPG Mediabrands.
“Mubaloo was founded in 2009 by myself and Ben Trewhella. When we started, everyone wanted an app. But these days, our customers are much bigger and want more than just an app: they want a way of making their whole operation mobile-based.
“Since day one, we have continually had to innovate, to stay ahead in what is a very competitive market. New devices with more capabilities are coming out all of the time, and we would start using these before anyone had experience with them. And we were often having to come up with creative solutions, whether integrating with new services, or using features in new ways.
“To build the business, we needed to be able to hire talented people at the right time. The R&D tax credit injected cash into my business quickly, allowing me to invest in the company’s growth without having to apply for a loan or embark on a lengthy funding round.
“Ultimately, the R&D tax credit played a part in building a financially strong yet nimble business, which made it attractive to buyers”.
Trustpay Global, an online and mobile payment platform provider, was advised that what it was doing didn’t qualify as R&D. Upon making enquiries, the company soon realised that its activities were eligible for a claim.
Peter Barnes, CFO at Trustpay Global, explains: “We have spent the last five years building a scalable payment platform to offer our customers a unique user experience and provide connectivity to a wide-range of payment methods. We continue to develop the platform to provide innovative solutions to our customers in multiple jurisdictions and markets.
“We now have two successful claims under our belt and each time was surprised by the size of the claims that we able to make and the level of support provided by the government under this scheme. As a start-up company, the funds have been invaluable and enabled us to recruit additional staff to accelerate the development of our system which, in turn, has allowed the company to grow.”