The number of businesses fell from 270,000 at the start of 2021 to 244,140 a year on, analysis of Thursday’s figures by innovation funding specialist Catax shows.

In comparison, business numbers in the UK overall fell by 1.5% over the same period. Turnover in the sector fell by 9.2%, decreasing from £636bn to £577bn, while the number of people employed in manufacturing dropped by 1.7%.
 
The UK’s manufacturing sector continues to be hampered by falling orders, with output falling for a third month in a row this September, and orders declining for a fourth consecutive month.

"The manufacturing sector had a challenging 2021, with business numbers shrinking by nearly 10% - far exceeding the UK's overall business loss," said Catax CEO Mark Tighe.
 
"The fact that output and orders continue to fall is a concern when advanced manufacturing is still seen as part of the UK's future growth story. A significantly weaker pound could well have an impact on turning that around this year."

www.catax.com

Businesses in the sector are throwing away millions of pounds even though a massive 83% of them have developed new products or business processes in the past two years, research shows. This means they are in line for valuable R&D tax relief that the government provides to encourage innovation. 

But despite 80% of firms being aware of R&D tax relief, only 39% report ever claiming it, the Catax study shows. This is either because they don’t think they qualify or they incorrectly believe that it is expensive. 

The national average for the number of firms that have ever claimed is 36.8%, roughly in line with the building and engineering sector whose executives massively underestimate the value of the average SME R&D tax relief claim by £23,011, according to the Censuswide survey. 

Executives believed the average value to be just £22,989 when the true figure is £46,000 for firms in all sectors nationwide. Those engineering and building firms who have undertaken research and development over the past two years report spending £292,001 on average.

R&D doesn’t even have to have been successful to qualify and claims can be backdated to the last two years. 

Catax CEO, Mark Tighe, comments: “The engineering and building sector could be squandering tens of millions of pounds a year. The situation is that the majority of firms in the industry could be eligible to claim but a minority do so. 

“In a world of tight margins this situation has got to change and cost benefit doesn’t come into it because most good R&D tax relief firms will work on a commission basis.

“It’s important firms recognise that R&D is not all about lab coats and multi-national companies, and the R&D doesn’t even have to have been successful to qualify.”

Catax explains that R&D tax credits can help to reduce a limited company’s corporation tax bill or be claimed as a cash sum reimbursement from the HMRC. R&D tax relief only applies to those businesses that are liable for corporation tax, including businesses making a loss.

Even when senior managers and owners at smaller UK engineering firms have heard of R&D tax relief, more than a third (36%) believe it is restricted to specialist hi-tech science or drug companies.

But with 55% of survey respondents saying they have spent time and money ‘developing a new product or process over the past three years’ — the basic requirement for an R&D tax claim — Catax says the likelihood is that more than half of British engineering firms could be due a sizeable tax windfall.

Meanwhile, 35% of the engineering firms polled mistakenly believed that any eligible R&D activity must be successful for a claim to be made. This is not true: the outcome of the R&D is irrelevant. What matters is the time and money spent developing the new technology, processes or techniques.

Examples of successful engineering R&D claims at Catax in 2017 include:

•  Design and development of a hard-wearing butterfly valve able to withstand the corrosion and degradation caused by different materials and liquids 

•  Design and development of terror alert bollards that can be deployed more quickly through an improved hydraulic system

•  Design and development of a proprietary steel support framework for railway tunnels

The ongoing lack of awareness around R&D and the eligibility criteria that apply to it is costing the UK’s engineering firms millions in tax relief each year. To date, the average R&D tax benefit for engineering clients of Catax is just over £39,000.

Mark Tighe, CEO, Catax, commented: “British engineering firms are recognised around the world for the sheer depth of their innovation. But in far too many cases the tax relief available to the companies driving this innovation is being overlooked, often at great cost. This is especially the case with smaller engineering firms, which may not have access to the tax resource and expertise of their blue chip counterparts. It’s crucial engineering firms seek advice about the tax relief they are due for the valuable R&D they are carrying out, which will often amount to tens of thousands of pounds.”

R&D tax credits can help to reduce a limited company’s corporation tax bill or be claimed as a cash sum as a reimbursement from HMRC. R&D tax relief only applies to those businesses that are liable for corporation tax, including businesses making a loss.