Scotland’s biggest firms see share of UK innovation plummet since Brexit vote

Scotland’s biggest firms have seen their share of UK innovation shrink by more than a third since the Brexit vote, despite a wider rise in research and development spend, new analysis suggests.

The decline of 39.5 per cent comes despite a marked rise in research and development (R&D) spending across companies of all sizes.

The largest Scottish-registered employers accounted for £1 in every £63 clawed back UK-wide in R&D tax relief in the latest year, compared with £1 in every £38 two years earlier, according to the analysis of official figures by specialist R&D tax consultancy Catax.

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The research also revealed that the number of claims being made by Scotland’s largest companies has risen by 16.2 per cent over the same period.

Catax said the share of the R&D cake claimed by the largest businesses registered in Scotland has collapsed since the Brexit vote. Picture: Jeff J Mitchell/Getty Images

Catax noted that the total amount spent by businesses of all sizes registered north of the Border on qualifying R&D rose by 5.3 per cent from £1.42 billion to £1.5bn. This compares unfavourably to a UK-wide jump of 42.7 per cent in overall R&D spending, climbing from £24.6bn to £35.1bn in the latest available year.

The firm carried out its analysis by comparing claims made by large companies under the UK government’s R&D expenditure credit (RDEC) scheme with the total amount claimed by UK companies of all sizes.

RDEC is the scheme larger businesses use to claim tax credits on qualifying innovation, and they are typically the biggest employers.

The RDEC scheme rewards companies seeking to resolve a scientific or technological uncertainty, whether that is a new process, product or service. Catax stressed that R&D work does not need to have been successful to qualify, and can result in either a reduction in a limited company’s corporation tax bill or a cash lump sum.

Richard Armstrong, head of RDEC at Catax, said: “It’s a mixed picture north of the Border. The share of the R&D cake claimed by the largest businesses registered in Scotland has collapsed since the Brexit vote.

“Whichever side of the independence debate you come down on, this isn’t a trend anyone will want to see becoming entrenched, even if the amount of R&D being undertaken overall by firms of all sizes appears to still be slowly increasing.

“Scotland needs to punch above its weight in the future and, in the business world, R&D is the only way to make that happen. The whole country’s economic future and labour market will largely depend on that.”

He added: “Thousands of companies have faced financial difficulties in the past year but many don’t claim the tax credits they’re entitled to, and large companies aren’t immune from underclaiming.”

Manchester-headquartered Catax, which operates in Scotland from Edinburgh and Glasgow, says that since its launch it has recovered more than £390 million of tax relief for its clients in the areas of research and development, capital allowances, the Patent Box and remediation of contaminated land.

The firm undertook extensive analysis of data from HM Revenue and Customs’ (HMRC) R&D tax credit supplementary tables across various periods, along with a geographical breakdown of businesses by registered addresses.

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