Is a lack of R&D funding holding UK innovation back?

Research from the Office for National Statistics revealed that the UK spent just 1.69% of GDP on R&D in 2017, compared with an EU average of over 2%. The UK, in fact, is 22nd on the R&D funding list. The shortage of research funding is particularly marked when it comes to the development part of the business cycle. A recent report for the Royal Academy of Engineering concluded that this is holding back the potential of an otherwise strong system of innovation in the UK.

The UK undoubtedly has many attributes that already attract businesses to locate their high-quality, early-stage R&D activities here. Unfortunately, this is undermined by gaps in the R&D and innovation system at a highly risky and expensive time in the development cycle. Plugging these gaps would help innovative businesses, boost productivity, and create better jobs and social outcomes in the UK.

The government’s Industrial Strategy, includes plans to increase research funding to 2.4% of GDP by 2027. The government says it will start with an extra investment of £2.3 billion in 2021-22, raising total public investment in R&D to £12.5 billion in total.

One of the key things that business owners are waiting for is the UK Research and Innovation roadmap to detail how the government is going to reach the 2.4% target. Grant initiatives including the government’s Catapult Network, which was recently awarded an extra £780 million in funding will help to increase the likelihood of satisfying company needs and also reaching the research funding target.

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46% of small business innovators who don’t use government support didn’t know R&D incentives were available in the first place. In an attempt to increase UK business innovation, the Government is going to increase the awareness of R&D tax credits, in particular, where there are small firms that have got a new-to-market product, but are depending on the transfer of R&D funding to improve productivity.

R&D tax credits come in several forms, but essentially the business will either receive a payment or a reduction in Corporation Tax. The scheme is relatively well known, so an increase in awareness should be an improvement in aiding business owners and innovators.

However, a large number of business owners are still not making R&D tax credit claims. There are some simple and understandable reasons for this.

One of the many reasons include how some business owners never considered their work to be recognised as R&D or an innovation or even trying to improve a product or meet their customer’s need.

What impact will Brexit have on R&D funding?

Alongside tax credits comes the Patent Box scheme which is equally underused. It can reduce corporation tax on a qualifying product line to 10%.

The Patent Box scheme is designed to work alongside R&D tax credits to further reward innovative UK businesses. If a company is already claiming under the R&D scheme, the business owner may well have a claim under the Patent Box scheme, but only if they have a patent. It’s a major opportunity for businesses, however HMRC statistics show that 97% of companies engaging in R&D are missing out on it.

On a positive note, UK research funding is set to increase. But as for European Union funding, this is currently unknown. Until now, the UK has been able to benefit from the Horizon 2020 programme, which is the biggest EU research and innovation programme, making nearly €80 billion of funding available for companies between 2014 and 2020 across the continent.

While the government has agreed to continue payments that have already been approved up to the end of 2020, it’s not clear how it will be involved after that. Horizon 2020 in the UK has been a success and the government has agreed to fund the spots that have already been assigned, but in terms of the future, there’s some uncertainty.

Do you believe you have a suitable R&D claim?

To find out if you’re eligible for a claim, get in touch with the EFM team. Email or call 01582 516300 to set up your free one hour consultation.