Scots firms encouraged to maximise R&D activity in wake of new stats

Business-leaders in Scotland are being encouraged to maximise research and development (R&D), helping boost the economy, after newly published data unveiled a ramping-up of spend on innovation by firms both north of the Border and UK-wide.

Spend on high-reward R&D grew in Scotland to £1.91 billion in 2021/22 from £1.88bn in 2020/21. Picture: Peter Macdiarmid/Getty Images.

Annual Scottish business spending on the most valuable forms of innovation rose by 1.6 per cent in 2020/21, according to analysis of new UK Government statistics by tax services and software provider Ryan.

The data is captured by HMRC and based on claims made for R&D tax relief, which reward businesses for qualifying innovation. The UK area seeing the biggest percentage drop was North-east England at 6 per cent, while Yorkshire and The Humber showed the biggest increase at 24 per cent.

Expenditure on high-reward R&D grew in Scotland to £1.91 billion in 2021/22 from £1.88bn in 2020/21, with the area clocking up the highest figure in the most recent numbers London at £13.7bn and Wales the lowest at £770 million.

Nigel Holmes, R&D director at Ryan, says: 'Innovation spending by Scottish businesses continues to grow.' Picture: Adam Hudson Photography.

Ryan said that despite Scotland’s growth in expenditure, the number of tax relief claims for R&D projects made by businesses dropped slightly to 4,550 from 4,575. In total, Scottish businesses claimed £335m in R&D tax relief, with an average claim value of £73,626. Overall, UK-wide innovation spending that qualifies for tax relief rose 8 per cent to £44.1bn in 2021/22, but the number of first-time claimants fell for the second year running.

Amsterdam-headquartered Ryan explains that R&D tax relief was introduced in 2000 to encourage and reward innovation, and results in either a reduction in a limited company’s corporation tax bill or a cash lump sum for companies seeking to resolve a scientific or technological uncertainty. The firm adds that relevant projects carried out by UK companies introduce new products and services to the marketplace, playing a “critical” role in economic growth as they attract investment, boost exports, and lead to the creation of more skilled jobs.

Nigel Holmes, R&D director at Ryan, said: “Innovation spending by Scottish businesses continues to grow, and will be playing a big role in driving economic growth and employment. While the number of businesses claiming for R&D tax relief did fall, it was just a small drop and can be easily improved in the coming years. However, business-leaders must not get complacent, and should continue to do what they can to encourage R&D in Scotland, as this will lead to further inward investment and jobs-creation.”

Separately, Douglas Reid, tax director at Edinburgh-based Visiativ (formerly known as Jumpstart) singled out the new HMRC figures showing a “significant” year-on-year increase of 8 per cent on R&D investment by UK companies.

“The continued decline in first-time applicants to the SME scheme is noted, and one I would anticipate to continue in light of new legislative changes that have now come into effect,” he added. “I am, however, encouraged to see a major rise in first-time [R&D expenditure credit] applicants, which is up by 14 per cent from last year.

“Overall, these are positive figures which highlight how British businesses are recovering from the impact of Covid and ramping up their investment into innovation. This will ultimately benefit the UK economy going forward.”