Annual R&D statistics from the government are out, based on claims for R&D tax relief made by companies on or before the 30th April 2021. And the good news is that despite the triple challenges of Covid, Brexit and global economic instability, UK R&D is holding its own.
The latest report certainly makes for an interesting read, although it’s perhaps it’s not a total surprise to discover the manufacturing sector is the biggest claimer, particularly in London and the South East.
According to online publication The Manufacturer, UK manufacturing currently employs 2.7 million people – earning an average of £32,500 and contributed 11% of GVA. It also represents 69% of business research and development (R&D) and provides 13% of business investment.
IT and communications came very close behind, with 6,080 claims in London alone.
A global Britain
The UK’s manufacturing industry is world-renowned for its high-quality, high-value innovation. This has long meant successfully meeting domestic demand, as well as accessing global opportunities that significantly benefit the wider UK economy.
Attractive fiscal support to underpin investment in R&D across the board is vital. And thanks to generous tax incentives such as R&D Tax Credits the message is getting through. But business taxes must stay globally competitive, with capital allowances continuing to support the purchasing of equipment, machinery and plant. The patent box could also be extended in future, perhaps to cover a broader range of Intellectual Property.
The statistics show that overall, 76,225 claims for R&D tax relief were made by SMEs compared to a much smaller 4,370 RDEC (usually larger company) claims. Again, considering 99% of all UK businesses are SMEs, this is perhaps far from surprising. But what is concerning is there’s still a notable north-south divide, not just in manufacturing claims but across the board.
Looking back at previous statistics for the year prior, 60% of R&D claims came from companies based in London and the South East. It’s clear that the South leads the way in claiming – and maximising – R&D tax relief to the full. The South also made 22,040 claims during the same period, providing Southern-based companies more than £1,515 million in funding for innovative R&D work.
In comparison (looking still at previous data) the North of the UK was responsible for only 16,185 R&D tax relief submissions. This only generated Northern companies around £820 million to fund their innovations. One example is Hull, where only 30 claims were made in 2018-19, with even larger cities like York and Blackpool only submitting 155 and 35 claims respectively.
And for 2019-2020? Figures just released show R&D tax relief claims have increased in number across the board, with 29,950 made in London and the South East, compared to 22,600 across the whole of the north. Blackpool and York did better this time with 60 and 280 claims respectively, however, the likes of Hartlepool and North Lincolnshire struggled, with 60 and 75 total claims respectively.
In manufacturing particularly though, the numbers are stark with claim costs totalling just over £1.8 billion of which £550 million came from London and the South East alone.
The government has long touted its levelling up agenda, promising additional support with R&D incentives geared towards the North. However, there’s clearly much still to be done.
Investment into advanced manufacturing – especially in the north of the country – is essential if the government’s levelling up strategy is to move forward. Only then will the UK put itself on a competitive footing with leading nations globally. Long-established UK manufacturing centres of excellence across the UK such as Clyde shipyards and chemicals in the Northeast and automotive in the West Midlands support supply chains and employment across the region. Continued investment is crucial.
Key areas of R&D in manufacturing
The manufacturing sector is a pretty broad brush and innovation occurs on an almost daily basis. Whether it’s developing new technologies, products, systems or processes, or improving supply chains, innovation is at the heart of manufacturing, enhancing the industry’s efficiency, yield and performance. While there are numerous broad and specific areas of innovation within manufacturing, the most significant ones include:
- Developing, testing and trialling new products, processes and services
- Turning previously manual processes into digitised, automated operations
- Integrating new technologies with older, outdated back-end systems
- Developing sustainable packaging
- Building specialist tools to meet high-specification product designs
- Boosting productivity by carrying out digital or mechanical modifications to production lines
- Modifying existing production processes to comply with changing regulations
Manufacturing and Net Zero
Climate change and the New Zero agenda is a hot topic. Only by scaling up and enhancing the manufacturing landscape can the UK hope to make any progress towards a Net Zero future.
Decarbonisation of both products and processes is the main ingredient of the Net Zero goal. It’s a shared ambition throughout advanced manufacturing, with robust targets set by government. But these targets can only be met by collaboration between companies and organisations.
The manufacturing industry as a whole is extremely energy-intensive. It’s therefore essential that Britain capitalises on emerging low-carbon opportunities, such as advancing battery technology as well as hydrogen and wind power. For companies looking into UK investment, energy security and costs are important considerations – especially as electricity prices here are soaring against EU competitors.
“Manufacturing, as well as IT and communications, are industries that are strongly innovative simply by their very nature. It will always therefore be a huge beneficiary of R&D tax relief, and this latest data supports this,” said Barrie Dowsett, CEO of R&D tax claims specialists Myriad Associates.
“The key message is that R&D tax relief is a vital tool in sustainable economic growth; it isn’t just the preserve of large companies breaking the innovation mould. It’s also very much available to smaller companies too, across all industries, with up to 33% of eligible R&D costs reclaimable.”
The path to making a claim is extremely complex. Guidelines are updated regularly by government and pinpointing exactly which costs are eligible (and which aren’t) is a minefield. This is why the majority of companies looking to exploit R&D Tax Credits will partner with an experienced R&D tax consultancy. And with average claims topping £65,000 for a single project, it’s a ready source of cash that shouldn’t be disregarded.