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South East leads the way in R&D tax credits

Posted: September 16, 2016

Companies in London and the South East continue to be the biggest benefactors of the R&D tax credit scheme, according to new figures.

In total, companies received £2.45bn in tax relief for research and development last year, according to official figures, with claims rising to 22,445, an increase of £675m or 38% on the previous year.

The number of claims from small and medium-sized companies rose by 16% while large company R&D claims fell by 38%, reflecting the switch over to a new tax credit scheme for larger companies.

Since R&D tax credits were launched in 2000, the government has provided almost £14bn in tax relief with SMEs taking the lion’s share with 39,360 different claims compared with 9,030 for large companies.

HMRC’s data suggests the scheme is meeting its objective of incentivising and encouraging innovation among UK businesses. However there are some concerns over the regional split of investment.

Companies in London, the South East and East of England account for the lion’s share of the R&D tax credit scheme, although where a company is located does not necessarily indicate where the money was invested.

Manufacturing, professional, scientific and technical, and information and communication sectors continued to have the greatest volume of claims, making up a total of 75% of claims and 77% of the total amount claimed last year.

A new study of 247 UK businesses by consultancy ForrestBrown showed that tax credits had allowed SMEs to sustain or boost innovation. Of those that claimed 40% directly increased R&D activity, 60% sustained R&D activity and 62% hired new staff. A total of 24%reinvested the funds into new manufacturing processes, product development or setting up new offices.