Analysis of HMRC data reveals significant geographical divide in SME R&D tax claims despite ‘levelling up’ agenda

Funding | Reports

Despite a year of impressive innovation, analysis of HMRC data released today from Leyton, the UK’s largest innovation funding consultancy, reveals a significant geographical divide in UK SMEs claiming for R&D tax credits.

The research shows that a staggering 35% of all SME claims for 2018-19 are made by companies registered in London and the South East of England.

The region with the lowest number of SME claims is Northern Ireland with only 1,400 for the 2018-19 tax year. The North East of England and Wales registered only 1,795 claims in 2018-19 respectively. Scotland also finds itself lagging behind with only 2,405 claims.

Within those regional breakdowns, there are some clear areas where levelling up is significantly stagnated, for example, Hartlepool.  The region, which has recently been under the spotlight for the political by-elections, saw only 30 claims in 2018-19. Even cities like Blackpool and York only saw 35 and 155 claims respectively during the period.

The HMRC figures, highlighted in the table below, illustrate a striking pattern in terms of year-on-year claim numbers. Whilst the 2018-19 figures are incomplete, with claims still being submitted during this timeframe, these figures suggest that despite the Government’s ‘levelling up’ agenda to spread wealth creation across the country, little has been achieved in promoting R&D investment equally across all regions of the UK.

  2017-18 2018-19 (complete figures available September 2021)
  Number of SME claims Cost of SME claims (£, Million) Number of SME claims Cost of SME claims (£, Million)
North East 1,755 75 1,795 80
North West 5,690 220 5,455 245
Yorkshire and The Humber 3,895 145 3,815 150
East Midlands 3,585 140 3,340 145
West Midlands 5,155 205 4,880 205
East of England 5,390 320 5,120 345
London 10,550 755 10,190 860
South East 8,025 470 7,805 500
South West 4,175 160 4,045 155
Wales 1,875 85 1,795 90
Scotland 2,440 125 2,405 135
Northern Ireland 1,425 60 1,400 70
Total 53,960 2,760 52,045 2,980

R&D tax credits are a valuable tax relief designed to encourage and reward greater R&D spending, leading in turn to greater investment in innovation. The claims work as an incentive to encourage investment in R&D through providing tax relief or cash returns for the expenditure on R&D. Leyton’s clients – 80% of which are SMEs – claimed an average of £78,000 in R&D tax credits last year.

Radeep Mathew, Head of Consulting at Leyton UK, said: “Despite a year of incredible innovation and some truly inspiring stories from businesses across the country, it is disappointing to see the level of disparity between regions in R&D tax claims. The pandemic has put even greater pressure on cash flow and despite the Government’s agenda to ‘level up’ the country, London and the South still dominate in terms of benefiting from Government initiatives. We want to see businesses across the whole country who have worked on projects which qualify for R&D tax credits making the most of the resources out there.”

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