The Government obviously relies heavily on statistics in its decision making. Good statistics are essential. The problem when analysing and making decisions about the R&D schemes is that a lot of the data is quite bad.
The ONS and HMRC are currently running a consultation on this and the fact they are doing this and have made data changes to the ONS R&D national statistics is indicative of the problem. A mismatch has existed between the ONS survey figures and R&D schemes claim figures most notably.
But the problem also lies in the SME definition itself.
The Government definition is:
“The UK government definition of SMEs encompasses micro (less than 10 employees and an annual turnover under €2 million), small (less than 50 employees and an annual turnover under €10 million) and medium-sized (less than 250 employees and an annual turnover under €50 million) businesses.”
However, R&D claims use a special definition with increased thresholds:
“The SME relief was extended in relation to expenditure incurred on or after 1 August 2008 (CTA09/Ss1119 – 1121). For the purposes of R&D relief a SME is a company which meets the normal conditions specified in the EU SME definition, except that it may have up to 500 staff, turnover up to €100m and balance sheet total up to €86m. Companies satisfying this widened definition are entitled to R&D relief under the SME, rather than the large company, rules.”
So, to put it simply the R&D claim thresholds are double the commonly used one, over 500 employees not 250. Does the Government take account of this when making decisions or just go on raw data based on different measures? Is a very interesting question. Companies with 250-500 staff make SME R&D claims not RDEC/Large company ones, but the Government does not consider them SMEs.
The question occurred to me because I saw a Federation of Small Businesses (FSB) press release on the cuts where they argued against the announced cuts by saying:
“Companies with fewer than 250 employees contributed £24.3bn in investment in R&D last year, an increase of £4.3bn from 2018. Those with more than 250 employees contributed £22.6bn in R&D investment last year. The ONS has fixed methodological issues that led to it undercounting smaller firms compared to large ones in previous surveys, and which still impact its pre-2018 estimate.”
FSB press release: Response to ONS figures: R&D credit crunch turns triumph to disaster as Hunt slams tech start-ups.
That is a compelling argument against the cuts and the FSB are active in campaigning against the cuts. But how big would those numbers be if the statistic given above included firms with 250-500 employees who claim under the cut SME R&D scheme and also excluded those numbers from the plus 250 count?? It is clear the Government has cut R&D support from the company size, up to 500 employees, where a significant majority of R&D spend comes from. It can also be argued the Government has used bad data to make a bad decision.
For background check out my other recent blog. https://www.randdtax.co.uk/conservatives-make-massive-cuts-to-sme-rd-support-in-the-2022-autumn-statement-and-massive-increases-to-large-company-support/
You should also ensure you don't miss out on and R & D tax credits you are entitled to. Contact RAndDTax to discuss your tax relief claim.
Christopher Toms MA MAAT – Director RandDTax