Innovation spending by businesses in Wales has been setback by the pandemic, latest HMRC figures show.
According to the latest statistics on the number of companies claiming research and development (R&D) tax credits for the year ending 2021, a smaller proportion of Welsh firms are claiming R&D tax credits compared to previous tax years.
The data found that the total value of R&D relief claims expected in Wales will be £135m, down 6% from the £145m spending on qualifying R&D recorded in the 2019/20 tax year.
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The number of relief claims submitted has also declined with just 2.5% of Welsh firms using the scheme, compared with 3.7% in the North West and 3.25% in London.
However, of those R&D tax claims in Wales for the year, 90% are expected to be made by SMEs (2,415), with the average claim in Wales worth £43,478 - a significantly lower claim value compared to the £54,000 national average for SMEs.
Adam Park, director at Cwmbran-based tax consultancy firm Zest R&D, said: “The pandemic has caused a setback for innovation spending in Wales, but it is encouraging to see that SMEs are still claiming for the high-tech R&D activity that is taking place across the country. This kind of innovation is of vital importance to local economies, as it helps businesses grow and creates even more skilled jobs."
Mr Park added: "Businesses are already bouncing back from the pandemic and are continuing to invest, which should lead to R&D activities and claim values growing again throughout 2022 and 2023. There are certainly still firms out there that could benefit from R&D tax relief for work they’re already conducting, and use the funds to further boost their investment in innovation."
The data published by HMRC provides information on the number of companies claiming Research and Development (R&D) tax credits and the associated cost to the Exchequer for claims covering accounting periods for the tax year 2020 to 2021.
Across the UK, innovation spending that qualifies for tax relief also fell 11% to £38.1bn in 2020/21 - down from £42.8bn in 2019/20. The provisional estimated amount of total R&D tax relief support claimed for the tax year 2020 to 2021 was £6.6bn - down 4% on the previous year.
Conversely, the provisional estimated total number of R&D tax credit claims for the tax year 2020 to 2021 was 89,300, an increase of 7% from the previous year. The increase is driven by a 7% rise in the number of R&D claims within the SME scheme to 78,825.
This means there was a 10% decrease in the average value of claims in 2020 to 2021, which could be due to the impact of the COVID-19 pandemic, which may have prevented some companies from carrying out their normal levels of R&D activity.
The highest number of R&D claims will be made by businesses in the Information and Communication (22%), Manufacturing (21%) and Professional, Scientific and Technical (19%) sectors.
In terms of regional distribution, the most claims were made by companies with registered offices in London (21% of total claims and 31% of total amount claimed) and the South East of England (15% of total claims and 18% of total amount claimed). However, the registered office location may not be where all the R&D activity takes place.
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