R & D tax credits are a deductible allowance against corporation tax or, in the case of a company that is not liable for tax a cash payment, for expenditure on research and development. This allowance was introduced originally for small and medium enterprises in 2000 and extended to larger companies in 2002. The purpose of those allowances was to encourage innovation and statistics obtained from tax returns show how this incentive has operated were published on 15 Aug 2014 by HM Revenue and Customs (HMRC Research and Development Tax Credits Statistics).
According to HMRC over 100,000 claims were made by 28,500 SME and 7,000 large companies amounting to £9.5 billion between 2000 when the scheme began and 2013 when the statistics were collected. More than 45.8% of the claims and 62.8% of the amounts claimed were from companies with registered offices in London and South East England. Between 2012 and 2013 over £13.2 billion was spent on R & D of which over £10 billion was spent by large companies and the rest by SME.
IPO Facts and Figures
I have compared HMRC's statistics with the Intellectual Property Office's Facts and Figures for 2012 and 2013. Thwy break down British patent applications and grants by sector and region. I had not expected more than an approximate correlation because HMRC's R & D tax credit figures and the IPO's because R & D does not always result in a patentable invention and indeed an invention that is patentable can be protected by a patent from the European Patent Office. Moreover, the location of a company's registered office does not indicate where its R & D takes will take place. The correlation that I did find is therefore striking.
Between 2012 and 2013 there were 12,535 claims for nearly £1.2 billion of R & D tax credits of which 3,030 were from South East England, 2,715 from London and 1,630 from the East of England. In 2013 the South East came top for the number of patent applications with 2,822 followed by London with 2,588 and the East with 1,802.
It is harder to compare the figures for industrial sectors because HMRC's categories are broader than the IPO's. The top four sectors for R & D claims were manufacturing with 5,110, information and communication with 4,095, professional, scientific and technical with 3,030 and wholesale and retail trade and repairs with 1,375. Much of the R & D in HMRC's second, third and fourth categories will be for software and other matter excluded matter under s.1 (2) of the Patents Act 1977. Nevertheless it is possible to see some rough correlation because the top four sectors for patent applications in 2013 were for controlling, computing, timing, checking or signalling inventions (1,355), electronic circuitry and telecommunications (1,249), vehicles, transporting, conveying, packing and containers (1,141) and measuring, testing, optics and photography (961).
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Jane Lambert "Funding your Invention: R & D Tax Credits" 27 Aug 2014 Inventors Club blog
Jane Lambert "South East England leads the nation in R & D Tax Credit Claims" 25 Aug 2014 South East England IP Blog