Survey Reveals R&D Tax Credits Boosting UK Innovation

LONDON, September 6, 2016

Uptake of research and development (R&D) tax credits is set to double in the next three years, but a lack of awareness and understanding could be preventing companies from claiming, a study suggests.

The survey of 247 UK business leaders by R&D tax credit consultancy ForrestBrown is the first in nearly ten years to examine the impact the incentive has made on UK Plc.

Examining the success of R&D tax credits, the study showed it had allowed companies to advance their innovation efforts:

– 39 per cent directly increased R&D activity as a result
– 57 per cent sustained R&D activity
– 47 per cent hired new staff
– 24 per cent invested in new manufacturing processes, product development or new offices.

The study, A Nation of Innovators: A report on business attitudes to research and development, conducted by ForrestBrown and Management Today, saw 20 per cent of survey respondents state their business had claimed for R&D tax credits, while 40 per cent said they planned to do so in the next three years.

Although financial constraints were a major innovation barrier – with 57 per cent citing lack of financial resources as an obstacle to ongoing R&D – 80 per cent of claimants said the incentives are important to their company’s overall financial position, with half saying they are ‘very important’.

Despite uptake in the incentive increasing, it remains an untapped resource. Almost nine in ten (89 per cent) said their business planned to innovate in the next three years, but under half of that figure (40 per cent) planned to use the incentive in the same period.

Almost a fifth (19 per cent) were not aware the incentive existed, suggesting a greater need for education and publicity.

A lack of clarity on what activity qualifies could also be a barrier. Over half (53 per cent) weren’t aware that changes or modifications to an existing product were eligible, and more than three quarters (75 per cent) didn’t realise they could include unsuccessful R&D projects in their claim.

Simon Brown, managing director of ForrestBrown, commented “We can see quite clearly from the research that a relatively large number of businesses are either not participating in the incentive or under-claiming significantly, which is a missed opportunity to diversify income amid post-Brexit uncertainty that might impact cash flow.

“This report highlights the success of the R&D tax credit incentive in meeting its policy intent to boost UK productivity, but has unearthed key areas where further work is required to educate senior business leaders about the vital role R&D tax credits can play in business growth.”