PROSPER MAGAZINE: ISSUE 01 | BREXIT
WILL BREXIT AFFECT UK SME’S R&D TAX CREDIT CLAIMS?
HOW MIGHT THE LANDSCAPE FOR REWARDING INNOVATIVE UK BUSINESSES WHO INVEST TIME AND MONEY IN R&D, LOOK POST-BREXIT?
Prosper spoke to Ian Batkin, partner and co-founder of Wolverhampton independent firm Luvo Financial, who believes the value to innovative companies across the Black Country of the UK government’s R&D Tax Scheme, is set to soar.
“Significant numbers of start-up and established businesses have benefited hugely from EU funding of their projects, utilising EU grants and financial schemes to support their business plans and innovative activities,” Ian said.
“In a post-Brexit UK, this EU funding for innovation and R&D will almost certainly simply dry up and stop.
“Whilst the EU-funding-sized hole can’t be entirely filled by the UK government’s R&D Tax Scheme, its importance as a financial lifeline and reward for innovative businesses, will undoubtedly grow significantly once the UK is no longer a member of the EU.
“Whether with or without a deal, when the UK leaves the EU, the country must remain competitive to ensure economic prosperity and trading success. Innovation is the bedrock of the UK SME sector, particularly those in the Black Country’s business community, and this edge will only become more important to the UK keeping its well-earned place on the international stage.
“The government launched its R&D Tax Scheme about 19 years ago to support and reward innovation and R&D across every facet of UK industry. However, whilst part of the EU, the UK’s hands have been tied somewhat on the amount that can be claimed under the R&D Tax Scheme, particularly the one specifically for SME’s – that is those with less than 500 staff, a turnover of under €100m or a balance sheet total under €86m - which the EU has long described as being overly significant and generous, even labelling it as ‘state aid’.
“In a post-Brexit world, the UK’s R&D Tax Credits Scheme will, therefore, be even more valuable and in turn, financial support from the UK government will be more important, more self-determined and, thereby, potentially more appealing too.”
The average R&D Tax Credits claim is worth in the region of £50,000 per claim for SME’s, but to date, the vast majority of SME’s have missed out on this financial support.
“The UK's R&D Tax Credits Scheme exists to support ongoing and future product and service development activity and cost,” says Ian. “It is vital that more businesses are supported in applying for this financial reward for their R&D and innovation, particularly when the UK actually leaves the EU.
R&D ISN’T EASY - IT’S TIME-CONSUMING, COSTLY AND RISKY, AS THERE IS ABSOLUTELY NO CERTAINTY THAT A BUSINESS WILL GET A RETURN ON ITS INVESTMENT IN IT
“I suspect the low take-up and under-utilisation of the government’s R&D Tax Scheme is simply down to a lack of understanding and awareness,” says Ian, “because way too many businesses see the scheme as a potential time-consuming ‘pain point’.
“Despite R&D Tax Credits being around since 2000, and pretty generous with businesses able to recover about 25 percent of what’s been spent on eligible R&D and an average £50,000 pay-out, less than 10 percent of SME’s who could potentially claim, have actually done so. Hundreds of SME’s are missing out on thousands of pounds from the government in recognition of their investment in R&D, which many could utilise to support ongoing or additional innovative product or service developments.
“We estimate in the region of 20 percent of Midlands-based SME’s have developed new products, processes or services which would be eligible for financial support and reward from the R&D Tax Credits Scheme, but less than a third have actually made a claim.
“Not claiming and leaving this money on the government’s table represents a massive missed opportunity. And with the EU funding pipeline set to close once the UK leaves the EU, its financial value will become increasingly vital to sustain innovation.”
A&M EDM Smethwick based maker of precision parts and tooling for the aerospace and automotive sectors has claimed over £500,000 in R&D tax credits since 2012.
ONE IN EIGHT DRIVERS ARE DELAYING THEIR NEXT VEHICLE PURCHASE
Nearly half of all drivers are set to delay their next vehicle purchase, with one in four of those blaming Brexit, according to exclusive research for Britain’s leading weekly automotive title, Autocar, conducted by Simpson Carpenter.
The research follows another month of declining UK vehicle sales, with the latest Society of Motor Manufacturers and Traders (SMMT) figures showing new car registrations in April were down by 4.1%.
Market research firm Simpson Carpenter interviewed more than 1000 car buyers on behalf of Autocar. The data collected showed that, of those looking to delay their next vehicle purchase, 39% are doing so due to economic concerns – including the uncertainty associated with the UK leaving the European Union. Luxury car buyers are the most apprehensive - 51% have delayed their purchase, with one in three of them blaming Brexit for their delay.
The hiatus will have a long-term effect on the UK’s vehicle market, as 31% of buyers now say they will delay their purchase until the long-run effects of Brexit become clear.
UK buyers are also expected to shift their brand preferences after Brexit. One in five drivers said they would purchase a different make due to Brexit, with many favouring brands with UK manufacturing plants. Ford, which has an engine manufacturing facility in Dagenham and Toyota, which manufactures vehicles in the UK, are likely to be among the net winners. French and German brands are the likely net losers. This includes BMW, despite its Mini plant in Oxford.
Mark Tisshaw, the editor of Autocar, said: “Since the very beginning of the Brexit debate, the UK’s automotive industry has had a very clear stance – leaving the EU without a trade agreement in place would hurt sales and productivity.”