On Wednesday, 22 November, Chancellor Jeremy Hunt delivered his Autumn Statement – an event close...
FinTech companies are major contributors to innovation in the UK. The sector is at the forefront of developing new products and services, such as app-based banking and InsurTech, which have revolutionised how people manage their finances.
As a result, the UK has become a global leader in financial technology and is seen as an attractive destination for foreign investment. In fact, according to the City of London’s research, the sector generates £10 of every £100 of UK economic output and has created more than 2.3 million jobs. In the 2020–21 tax year, expenditure from financial and insurance services claiming R&D Tax Credits was £2,585M – this accounted for 6.78% of all R&D spend in the UK.
We’ve reviewed the stats behind R&D Tax Credit claims for FinTech companies, specifically looking at innovation figures for the financial and insurance sectors to reveal more about the health of financial and insurance innovation in the UK.
Overall, the number of R&D claims in the UK increased during the 2020–21 tax year. However, the financial and insurance sector saw a slight drop in their R&D claim numbers with 1,440 claims – down 4% from the previous tax year. This breaks down to 1,085 SME scheme claims, 275 RDEC claims from large organisations, and 80 RDEC claims from SMEs.
The decline interrupts a steady period of growth in R&D claims for the financial and insurance sector. It can mainly be attributed to fewer RDEC claims. In 2019-20 there were 405 RDEC claims (105 of which were from SMEs). In 2020-21 this dropped by 12% to 355 RDEC claims (80 of which were from SMEs).
On the whole, the amount of R&D relief claimed in the UK decreased by 4%. The financial and insurance sector suffered particularly with a worse-than-average decrease of 12% in the amount of relief claimed.
Again, this decline can be attributed primarily to RDEC claims. Tax relief claimed through RDEC dropped from £275M in 2019-20 to £225M in 2020-21, a decrease of 18%. Of these, £215M came from large organisations and £10M came from RDEC claims by SMEs.
Relief claimed through the SME scheme actually increased, from £105M in 2019-20 to £110M in 2020-21 (an increase of 5%). This follows an encouraging trend of year-on-year growth over the past five years from financial and insurance small to medium enterprises.
Overall, R&D expenditure declined by 11% in the 2020-21 tax year. Finance and insurance R&D suffered worse than average, dropping by 19% from £3,175M in 2019-20 to £2,585M in 2020-21. This is the sector’s first drop in expenditure since the 2017-18 tax year, when expenditure decreased by 5%.
The UK government’s 2022 review of UK financial services suggested that there was an opportunity to embed “innovation experts” in policymaking teams so that regulators can become more “pro-innovation…further boosting innovation and growth”.
More concretely, they announced that they would create and fund the Centre for Finance, Innovation and Technology (CIFT) to help address barriers to growth as well as drive innovation in UK FinTech.
Deloitte recently reviewed the UK FinTech landscape, examining FinTech activity across the UK. They identified 25 UK FinTech clusters, which they broke into four groups:
Has your business invested in innovative financial technology? Our highly qualified tax and technical consultants can unlock considerable savings through R&D Tax Relief. Find out how Leyton UK supports companies conducting R&D in the financial or insurance sectors.
If you enjoyed this article, you might also like our white paper on Research and development (R&D) Tax Credits statistics 2022.
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