Two interesting articles appeared around the bank holiday weekend which highlight the potential value of mining the R&D Tax Credit data submitted to HMRC annually.
The first was by Matthew Lynn in the Daily Telegraph, titled ‘Recovery depends on killing off more zombie companies’. The other was a summary of a recent study by Agility in Mind about the impact of Rishi Sunak’s ‘Help to Grow’ scheme on SMEs.
Killing off Zombies
Matthew’s point is that, although the British economy has become more entrepreneurial even during the pandemic, evidenced by,
- Start-ups received more than £11bn in fresh venture capital in 2020 – the highest level on record
- In the first quarter of 2021, new incorporations were up by a record 24% (4.5m private companies)
- Government support programmes such as the Future Fund and its follow-up, the Breakthrough Fund
- 81 Unicorns now exist in the UK, more than France, Germany and Sweden combined.
the problem is that the old companies are not making way for the new ones at the rate they used to.
Figures show that the overall level of corporate insolvencies is down to levels last recorded in the 1990s, and running at half the rate of the last big recession in 2008-2009.
The reasons for this are clear. Since the pandemic began the Government has launched scheme after scheme to keep companies afloat, no matter what difficulties they may be facing. And all that comes against a backdrop of low interest rates.
The result is the creation of a legion of zombie businesses kept artificially alive on soft money and government support – running businesses certainly hasn’t become any easier during the past twelve months, so this is the only credible explanation.
Matthew believes that we need the old companies to disappear as new ones emerge, so that capital is freed up, resources are made available and tired business models can be replaced with fresh ones. How? – by withdrawing furloughs, rate relief and soft loans from struggling firms.
Help to Grow – who?
In the context of the above, Rishi Sunak’s ‘Help to Grow’ Scheme appears to fall between two stools.
Rather than specifically ‘shoring up’ companies in difficulty, the Chancellor announced the £520 million scheme in March, offering 130,000 SMEs the chance of MBA-style management training by providing access to some of the UK’s top schools. The 12-week programme kicked off in June this year, with Mr Sunak stating that the scheme would “help over a hundred thousand businesses become more innovative, more competitive and more profitable.”
In other words, the scheme was aimed at ‘Building back Better’ – encouraging existing companies to become more innovative (a key Government priority), as opposed to just relying on the new start-ups.
However, the Agility in Mind research found that a quarter of UK businesses know nothing or very little about the ‘Help to Grow’ scheme, and a further 39% said that despite being aware of it, knew nothing about the details. 500 senior decision makers in UK businesses, excluding sole traders, took part in the poll.
According to the study, UK business decision-makers were more concerned about increasing productivity in their workforce, rather than improving their leadership and spurring innovation in a post-pandemic world. Business leaders did not list leadership or innovation as top priorities when it came to growing their firms in the next year, the research showed.
What this also reveals is a lack of understanding of what Innovation means – process innovation, for example, is key to achieving productivity improvements, but people don’t generally see that as Innovation.
Why turn to the R&D Tax Credit statistics
We have a clear problem to address. The Government is committed to increasing the UK’s spend on R&D to 2.4% of GDP.
To achieve this, we can’t rely just on the new start-ups to deliver this. We must sort the wheat from the chaff in terms of our existing industry base. This means refocusing our support to the companies who are or have the potential to innovate.
It is now time to adopt a more proactive approach to analysing, segmenting and prioritising the businesses we support.
HMRC Data
HMRC data on R&D Tax Credit claims (Sep 2020), shows c54,000 SMEs claimed, including 15,750 for the first time. In other words, at least 38,000 claims were from ‘existing’ businesses. Many of whom may have had to take advantage of one or more of the Government’s support schemes during the pandemic.
It is these companies who are currently driving the majority of the UK’s innovation. Surely it is them where support to grow should be actively focussed as a priority. We don’t want to have to keep hoping it is the next generation of start-ups who take the economy forward.
MSC R&D – why us?
At MSC R&D we work with companies with innovative technology, who demand and get the best R&D Tax Credit service.
R&D Tax Credits are a vital source of innovation funding. Our role is to invest in the best people and processes so our clients can be confident their claims are both optimised and compliant.
