Is London’s tech hub capitalising on R&D tax relief?

Mark Johnson's picture
by Mark Johnson

Garry Keith, London Business Development Manager at R&D tax relief specialist Jumpstart says the capital’s young startups should make sure they don’t miss out on a valuable tax credit they are entitled to.

The UK’s technology sector is thriving, with London continuing to serve as the driving force in supporting existing businesses and attracting new start-ups. 

According to our analysis of Companies House data, there were 4,678 new technology company incorporations in the capital in 2018, a significant jump from the 3,996 which set up a year earlier. 

Taxing issue: Jumpstart's gary Keith says R&D tax relief could be significant

London is also ranked as the number one city in Europe for supporting start-ups and scale-ups in the latest European Digital City Index as it continues to build its reputation as a leader in the development of Artificial Intelligence (AI). 

Technology businesses throughout the UK, including those in London, are being further supported through the continued investment in the R&D (research and development) tax relief scheme, which is designed to encourage and incentivise innovation. 

HMRC reports increase in R&D tax relief savings

HMRC’s latest statistics for 2016-17, released last September, show an increase of 636% in the amount of R&D tax relief savings claimed by London companies over the last seven years. 

The figures also show 7,770 claims (6,560 made by SMEs) secured in the city, accounting for 29 per cent of all UK claims made in the period. This generated around £490m in tax rebates with a quarter of the London claims made by ‘Information & Communication’ sector companies, which includes technology businesses.  

Given the already impressive (and rising) number of London technology companies, these figures seem relatively modest and raise concerns that many are not claiming R&D tax relief to which they may be entitled. It is likely that many companies simply don’t realise they’re eligible to secure these benefits. 

According to HMRC’s criteria, a company may be eligible if a project ‘seeks to achieve an advance in overall knowledge or capability in a field of science or technology through the resolution of scientific or technological uncertainty’. 

Costs could be elegible for R&D tax relief

Regardless of whether the project is ultimately successful, any expenses for activities involving staff and subcontractor costs, materials and consumables, utilities and computer software could be eligible for R&D tax relief. 

We supported a London-based business focused on developing AI technology. The company invested in a project to enhance and improve the functionality of its core software systems to significantly improve its image recognition abilities. 

In this case the investment was a success delivering process improvements which led to a 90 per cent recognition rate. Several aspects of this project qualified for R&D tax credits with the company securing a significant rebate of nearly £200,000.  

As the above example demonstrates, there are certainly strong incentives for businesses to pursue an R&D tax relief claim, especially within the technology sector where claims tend to be significant compared to many other sectors.  

It is encouraging to see London-based companies leading the way across the UK in claiming for R&D tax relief. If the city is to develop its formidable reputation as a key international technology hub, it will be essential for more businesses within the sector to ensure they are grasping the opportunity to claim rebates for their investment in innovation.

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