Report on Midlands R&D spend questioned

Mark Evans, managing director of Wolverhampton based R&D Tax Claims Ltd, comments on the recent OECD Report on R&D spend in the West Midlands region and questions if it offers a true picture.

According to a new report byThe Organisation for Economic Co-operation and Development (OECD), more than £1.46 billion was spent on R&D (research and development) in the West Midlands region in 2012, an increase of more than £200 million, following increasing automotive and aerospace investment.

The report states that a fall in investment in UK pharmaceuticals caused the UK’s total R&D spend to drop four per cent in constant prices from a year earlier, to £17.1 billion, the first fall since the recession.

According to the report, investment in R&D in the West Midlands remains significantly behind the south east, at £4.1bn; the east, at £3.5bn, and north west, at £1.8bn.

However Mark Evans, managing director of Wolverhampton based R&D Tax Claims Ltd, is not convinced that the report gives a clear picture of R&D involvement within West Midlands based companies.

“The report states that there are 14,000 people employed in R&D in the West Midlands”, says Mark. “I have no reason to believe the OECD statistics aren’t correct, but I’m not sure that it’s a true reflection of R&D practice within the region. The job of R&D Tax Claims is to help companies identify if what they do can be considered to be R&D and therefore qualify for a tax credit. Many of the companies we visit are not aware that what they do is R&D until we prove it to them with a diagnostic report – they’re either“problem solving”, “trying something out”, or just “doing what they’ve always done” while spending thousands of pounds on it.

“Many of our clients simply don’t believe that what they do qualifies as R&D, which is why tens of thousands of pounds a year goes unclaimed”, says Mark. “The Black Country, Birmingham and the West Midlands region as a whole is culturally reticent to adopt what they sometimes consider as grand terms like research and development. They simply get on with the job, and if it doesn’t work, they keep on trying until it does. But many of them don’t realise that even “failed” R&D can count - If a prototype or explorative project doesn’t come to fruition, it could still be considered for a tax credit, so bosses shouldn’t be put off trying”, he says. “The introduction of the Patent Box R&D tax relief by the Government in April of this year is an added incentive to make a claim, as this relief is in addition to, not instead of, the existing R&D tax relief available.”

“Around 150,000 eligible UK SMEs could benefit from the scheme but less than 10,000 make a claim”, continues Mark. “That means over 93 per cent are missing out because they’re not aware that they qualify.It’s getting businesses that are actually involved in what the Government and HMRC class as R&D to understand that it’s not about university laboratories and large scale enterprises making their own products. Many of our clients are SMEs supporting a growing automotive and aerospace supply chain and without their endeavours and persistence throughout the last five years, we wouldn’t be witnessing such a significant economic upturn now.

“Another obstacle we find repeatedly is that many companies think that the R&D tax reclaim scheme is just for high-tech companies, but it also covers businesses that develop new products or introduce new and improved processes or work in niche markets, and this can encompass engineering, software, electronics, pharmaceutical and communication systems as well as manufacturing. The OECD report clearly highlights the importance of R&D in the pharmaceutical sector.

“The OECD report states that “Aerospace R&D rose by £42 million, even though the sector is not the region’s main strength.” This is also misleading - the West Midlands is a multi-faceted sector and many of the UK’s leading aerospace companies are based in Wolverhampton.

“The UK has one of the most generous R&D tax credit schemes, which is why other manufacturing powers such as Germany are beginning to make noises”, concludes Mark. “£6bn a year in tax credits is available to be reclaimed by UK SME companies and we’re on a mission to ensure that they do.”