Businesses in the region will claim £325m in R&D tax relief for 20/21.90 per cent of R&D Tax claims in the South West are for SMEs. Average SME R&D claim in the South West is worth £38,740 - lower than any other region.

According to new data released by HMRC for the year ending 2021, there will be a smaller proportion of South West companies claiming research and development (R&D) tax credits compared to previous tax years.

The amount spent on innovation by South West businesses fell by nearly a quarter to £1.8bn during the pandemic, with only 2.9 per cent of firms taking advantage of the tax break compared to nearly four per cent from the North East and 3.5 per cent in London. Only Scotland and Wales have lower proportions of their businesses claiming.

Of the R&D tax claims in the South West for the year, 90 per cent are expected to be made by SMEs (6,195), with the average claim worth £38,740, compared to the national average of £54,000 for SMEs.

Across the UK, innovation spending that qualifies for tax relief also fell 11 per cent to £38.1bn in 2020/21 - down from £42.8bn in 2019/20. The provisional estimated amount of total R&D tax relief support claimed for the tax year 2020 to 2021 was £6.6bn - down 4 per cent on the previous year.

Conversely, the provisional estimated total number of R&D tax credit claims for the tax year 2020 to 2021 was 89,300, an increase of 7 per cent from the previous year. The increase is driven by a seven per cent rise in the number of R&D claims within the SME scheme to 78,825.

This means there was a 10 per cent decrease in the average value of claims in 2020 to 2021, which could be due to the impact of the COVID-19 pandemic, which may have prevented some companies from carrying out their normal levels of R&D activity.

According to the data, the highest number of R&D claims will be made by businesses in the Information and Communication (22 per cent), Manufacturing (21 per cent) and Professional, Scientific and Technical (19 per cent) sectors.

London and the South East of the country claim first and second spot in terms of the amount of relief offered, like the previous year.

Adam Park, director at tax consultancy firm Zest R & D, said: “The pandemic has setback innovation spending in the South West, but it is encouraging to see that nearly 3 per cent of businesses in the region are still claiming. The work being encouraged by the R&D tax credit is vital to innovation and the continued growth of businesses in the region, and the skilled employment opportunities they bring. “

Mr Park added: “Innovation expenditure is recovering after the pandemic, and awareness of the tax relief available will continue to encourage this in the coming years. We’re committed to raising awareness of the R&D Tax Credit and helping companies access the funds due to them so they can focus on their business goals.”