R&D spending hits record high

Business spending on research and development increased by eight percent in 2012 to a record high of £11.9 billion, up from £11 billion in 2011, in a further sign that the UK economy is recovering.

This is according to a new report from national accountancy group UHY Hacker Young, which also shows that £2 billion more was spent on research and development (R&D) last year than in the depth of recession. Spending was 19 percent higher than the low of £9.9 billion it fell to in 2009.

UHY Hacker Young says that, as business confidence has improved, businesses are keen to spend more money on innovation in order to gain or maintain their competitive advantage. However, businesses spent less than two percent of GDP on research and development, falling short of an EU target of three percent.

Clive Gawthorpe, tax partner at UHY Hacker Young, says the increase in R&D spending is encouraging and suggests that more and more businesses are willing to invest in long-term growth:

“The R&D tax credits scheme, in particular, has provided the incentive for many businesses to extend their investment in innovation, allowing businesses to reap the benefits of increased research and development but also allowing them to gain a significant tax break.”

UHY Hacker Young says that although HMRC’s interpretation of R&D spending is more restrictive than other interpretations, the numbers are amongst the best way of capturing trends in R&D expenditure.

R&D tax relief allows companies to undertake R&D activities and offset the costs against their corporation tax bill; SMEs with no tax bill to reduce can claim a cash payment instead. Businesses taking advantage of the R&D tax credits scheme claimed a total of £1.2 billion of tax relief in 2012, 10 percent of the total spent on R&D.

Even so, the UK government’s research and development tax relief is much less generous than that of other EU countries.

Clive added: “Even though the scheme has helped many businesses, the UK Government’s R&D tax relief is lower than that of the French Government, which handed out €5 billion in R&D tax relief in 2010. British innovation, which is critical to getting the economy back to heath, risks being left behind.”