As tech businesses start to look ahead to life after Covid-19 and consider what the ‘new normal’ will look like, how and when to make up for any lost R&D time will be at the top of many agendas.
Recent research by InnovateUK amongst R&D grant holders suggest that 1:9 firms stopped all their R&D activities during the lockdown period. More concerning though was that around 65% of firms reduced the scale of their R&D activities during the lockdown period and that around a third of firms plan to reduce their investment in R&D by more than half over the next quarter.
This is not unexpected. Following the financial crisis of 2008-10 UK firms sharply reduced levels of R&D and innovation activity, levels which only recovered fully 4-6 years after the end of the crisis.
Implications
The 2008-10 crisis suggests four key lessons for the current crisis:
- First, we should expect sharp falls (perhaps a third) in the proportion of innovating firms. Recovery to previous levels will be slow – 4-6 years perhaps.
- Second, firms’ willingness to invest in intangibles will fall sharply with implications for future innovation and growth. Again, recovery is likely to be slow.
- Third, while these short-term effects will be evident across almost all sectors and regions, recovery will be highly skewed by region and sector. Based on firms’ engagement with wider innovation, recovery is likely to be stronger in services and larger firms.
- Fourth, regional recovery in R&D spending will be strongly shaped by clusters of industrial activity. Where recent growth has been slowest, recovery is likely to be weaker. This applies to the East of England, the South West, the North East and the North West. A strong concentration of R&D activity in a particular sector (automotive) also makes recovery more vulnerable to sectoral conditions in the West Midlands.
The challenge for the Government
The UK Government has published its future UK R&D strategy to make the UK a research and science superpower.
Recognising and addressing the need to level up across the UK and not abandon the smaller innovator will be a major challenge.
R&D Tax Credits
In these difficult times, the attractions of the R&D Tax Credits scheme really stand out.
- For profitable SMEs it is worth around 25% of their R&D expenditure
- The average credit is over £50,000
- It is ‘guaranteed’ in that if you have spent money on qualifying R&D activity, you can claim
Some 45,000 SMEs claimed R&D Tax Credits in 2017-18
The potential downside next year will be the knock-on effects of reduced R&D expenditure on future R&D Tax Credit claims.
This makes it even more important to ensure your future claims are optimised, and that previous claims are also reviewed to check whether they are as good as they could be.
This is particularly relevant to software claims – an area constantly under review by the Government.
How can MSC R&D help?
It’s clear from the examples contained within the HMRC CIRD81980 guidelines that documenting and qualifying a software claim is by no means a quick and simple process. Getting the maximum amount out of a claim while satisfying all of the required criteria needs experienced and skilled specialists.
HMRC challenges can be a difficult and lengthy process; introducing a competent professional to carry out the exchange can therefore help to navigate the complexities of making a claim and save a considerable amount of time.
MSC R&D are fortunate enough to have a low challenge rate with the claims we work on. This is due to the fact that we employ many former HMRC employees and specialists who understand how to properly interact with and satisfy one of the largest financial institutions in the country. One of our Expert Consultants is Gavin Bate – who wrote the rule book during his time at HMRC.
If you want to be certain that you’re claiming for all the eligible parts of your R&D spend and that you’re staying within the boundaries outlined by HMRC, talk to us on 0114 230 8401 or email [email protected]
We also provide a full range of R&D funding solutions, so the understanding we gain of a client’s business during a R&D Tax Credit claim can be put to productive use in helping them access the full level of R&D funding they require.
Contact us on 0114 230 8401 or get in touch here to discuss your requirements.
