R&D Tax Credits – are Liverpool City Region businesses missing out?

Alastair Cameron, Principal Consultant at Glentarn Consultants and a member of ibd Business Advice Group, explains that Liverpool City Region businesses might not be making the most of the research and development tax credits that are available.

In 2000, the then Labour government, introduced research and development (R&D) tax credits to support companies who take risks using technology to develop new processes or products. The scheme was reviewed and supported by Sir James Dyson for the 2010 coalition and was enhanced further in 2017. It is a very good level of support, but it seems that companies in the Liverpool City Region may not be applying for the support they could receive from HMRC.

The first issue may lie in the name. The scheme is not all about scientists in white coats; software development accounts for the largest proportion of payments and successful claims have come from most sectors of industry, including food & drink, wholesale and retail, and admin support businesses.

Also, companies don’t need to be paying corporation tax to benefit. Typically, 40-50% of the annual support comes to companies by reductions in their tax bills, but the balance is paid in cash to those companies who don’t have tax liabilities. One company pointed out that its £54k cash payment made as much difference to its profit line as generating £1M in sales. The process for calculating what can be claimed is not straightforward, but expertise is available that will more than pay for itself in ensuring companies get the payments they could be due.

HMRC publish data by regions, but more detailed is required to be useful. I made a Freedom of information request to HMRC to get local data on the levels of claims being made across the North West. The results in the table below are startling

Table showing proportion of SME
’s claiming R&D Tax Credits and Values.

Number of SMEs (000s)* Number of Claims** Value of Claims (£M)** % of SME’s claiming Average Claim value (£K)
UK 2315142 21695 1330 0.94 61.3
London 503660 3995 325 0.79 81.3
North West 259055 2290 90 0.88 39.3
Greater Manchester 91005 1045 50 1.15 47.8
Liverpool City Region 37890 310 10 0.82 32.3
*SMEs registered for PAYE/VAT, ONS 2017  ** R&D Tax Credit Reports HMRC, Sept 2017 / Greater Manchester & Liverpool City Region Breakdown from FoI request

Across the UK, the 2015/16 figures show a 16% increase in the number of claims compared to 2014/15, and the total value rose by 34%, to an average of £61000 per claim. Across the whole of the North West, 1% of all small / medium enterprises claimed a total of £95m, an average claim of £39,000. Across Merseyside (the area that data has been aggregated for) 0.8% of companies claimed, and the average claim value was £32,000. These figures for Liverpool City Region businesses seem disappointingly and concerningly low.

They contrast with Greater Manchester where 1.15% of companies claimed, with an average value of £48,000. If Liverpool City Region companies were claiming at the rate of the regional average, another £4M could have been secured – and much more if regional companies claimed at the same rate as their cousins down the East Lancs road.

All may not be lost, however. The Revenue allows companies to make claims going back two years. This means that, if you think you think you may have qualified for R&D tax credits in the past, you may yet be able to take advantage of the scheme.

To find out more about R&D tax credits visit the Liverpool City Region Local Growth Hub website, where commercial advisors such as Alastair Cameron, Glentarn Consultants.