Subcontracting work for research and development purposes brings many advantages. It allows compa...
With software and technology advances continuing to shape how we live and work, the Information & Communication industry has become a vital leader of the UK’s innovation landscape, driving progress in areas such as cloud computing and cybersecurity.
It’s also a sector where the UK government has been lagging in supporting its modern R&D components, with essential functions of digital innovation (licence payments for datasets & data analytics and cloud computing costs) having only been recently included as qualifying expenditure for R&D Tax Credits. This welcome addition is hoped to drive R&D innovation and investment, and it’s clear that the UK government sees the sector as vital to the overall success of the UK’s economy, as evidenced by the UK’s Digital Strategy.
So why has this industry become seen to be essential to the future success of the UK economy? The most recent R&D Tax Credits Statistics shows how the Information & Communication sector has navigated political and economic uncertainty better than most.
Following a turbulent few years, growth in many industries either stagnated or declined during the 2020-21 tax year, but the Information & Communication industry has bucked this trend.
There was a period of slightly slower growth (although growth nonetheless) during the 2018-19 and 2019-20 tax years. The 2020–21 tax year experienced higher growth, with the number of claims jumping by 14% YoY from 17,100 to 19,520 claims in total. This breaks down to 17,325 SME scheme claims, 505 RDEC claims from large organisations, and 1,690 RDEC claims from SMEs.
It’s worth noting that 22% of all claims came from the Information & Communication sector – the highest amount of claims from any industry sector.
Growth slowed in the amount of R&D cash relief claimed during the 2020–21 tax year – a particularly difficult year for the UK economy due to the COVID-19 pandemic. This was reflected by an overall 12% YoY decrease in R&D Tax Credits claimed overall. It’s therefore impressive that the Information & Communication sector experienced 5.5% growth – potentially due to the new need for digital solutions to support working from home.
The growth was driven by a 7.9% YoY increase in the amount of relief claimed through the SME scheme, suggesting a good year for small businesses and startups. In contrast, the amount of relief claimed by large organisations through RDEC declined 5.8% YoY.
The Information & Communication sector claimed one-fifth of all financial support given out through R&D schemes.
After a healthy period of year-on-year growth, R&D expenditure from the Information and Communication industry grew only fractionally from 2019-20 to 2020-21, from £7,220M to £7,270M.
Despite this, the growth in R&D expenditure can be seen as relatively positive and an indicator of the sector’s health as on average R&D expenditure in the UK actually declined by 11% in the 2020-21 tax year.
Overall, the Information & Communication sector had the third highest amount of qualifying R&D expenditure (behind Professional, Scientific and Technical and Manufacturing) with 7.41% of all qualifying R&D expenditure.
According to the international trade administration, the UK is the largest ICT market in Europe. Not only this, research from IBIS World shows that the market size of the UK’s software sector is increasing faster than the economy overall.
Recent data from the Office of National Statistics, shows that in 2020 UK businesses spent over £5 billion on ‘digital’ R&D (18.7% of all UK business R&D). ‘Digital’ R&D is defined as computer programming and information services, telecommunications, and software development.
This all has huge implications for the UK economy. Global Data expect the UK’s Information and Communication Technology market to generate $960.21 billion between 2022 to 2026. According to Statistica, nearly 1M people are working in the UK’s Information and Communication industry. In fact, Tech Nation’s most recent survey showed that Software developers are still the most in-demand tech job across the UK.
R&D Tax Credits in the Information & Communication industry
The Information & Communication sector is a clear success story. It’s an obvious area for investment and future innovation and is widely expected to drive the UK’s economy into the future.
Did you know that over 60% of software businesses are eligible for R&D Tax Credits? If your business creates innovative solutions in the Information & Communication sector, you may be eligible for significant tax relief. Discover more about how we’ve helped software companies claim R&D Tax Relief.
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