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It pays to innovate within the Creative Industries
5 October 2020
The DCMS (Department for Digital, Culture, Media & Sport) recently commissioned OMB Research to deliver a UK wide survey of the creative industries to identify innovation activity undertaken by creative industries in the UK and the results make for very interesting reading.
With a sample pool drawn from across the Creative Industries to include companies of varying sizes from advertising and marketing, architecture, film, and TV, to museum, galleries, music and the performing arts – this once again demonstrates the sheer breadth and scale of businesses this sector incorporates. Moreover, underlining once again their importance to the British economy.
Some key statistics jump out of the survey, pointing to a need for a shift in education & perception towards enhancing innovation in the sector and a better understanding of the R&D tax credit scheme:
Only 14% of creative businesses had undertaken R&D using the HMRC definition.
Approaching one in ten (8%) creative industries firms had a specific budget for R&D.
Just over one in 10 firms (13%) had funded or collaborated with a university or other external organisation on R&D activities in the last year.
38% of companies surveyed deemed R&D not to be relevant to their business with a further 15% of business owners stating they were too busy to make a claim.
Innovation within the creative industries
Despite the varying nature of what many creative businesses deliver on a day-to-day basis, it’s fair to say this doesn’t immediately translate into what may be considered tangibly innovative work or more specifically, qualifying work for tax purposes under the R&D scheme. This therefore presents an opportunity for business owners to better understand how their products and services can be modified or interpreted to allow for clear demonstration of the iterative developmental work needed to provide clear evidence of qualifying R&D. Research suggests that creative industries are generally highly innovative, however there’s considerable disparity across the sub-sectors and disciplines.
61% of companies surveyed were classified as ‘innovative’, i.e. new and improved products, services or processes had been introduced over the past three years. This is against a UK average of just 38%. Perhaps surprisingly, architectural practices were amongst those businesses who were least likely to innovate within the creative sector.
The HMRC definition of R&D for tax purposes explains the ‘advancing science and technology’ as a determinant for qualifying R&D work under the scheme. This may be a considerable driver behind the perception of creative businesses not understanding the nature of the scheme or the work they deliver as being interpreted as qualifying. Herein lies the perception issue resulting in lack of investment or collaboration with external bodies.
Research implies the contrary, suggesting a positive causal relationship between R&D expenditure and innovation outputs. It may be interesting to see in 12 months’ time whether the impact of COVID-19 has had a direct result in acceleration of digital and automation within creative businesses and now products, processes or methodologies being created as a direct result of this.
When the report explored areas that creative businesses had invested in over the last year for the purposes of current or future product or service development the results showed a cross-section of areas.
Looking at this by discipline, architects showed the highest investment in design at 56%, whereas that of film, TV, video, radio and photography firms who invested just 26%.
Perceived barriers to Innovation and R&D
So, the question is why firms wouldn’t undertake R&D? The highest-ranking responses were around relevance and time. In taking this approach, business owners run the risk of missing out on potentially lucrative benefits through the well-established R&D tax credit scheme.
How can we help?
Working across the Creative Industries with a vast cross-section of clients, we’ve seen and spoken to clients who echo some of these sentiments and supported them to better understand the nature of scheme in the context of their business. We currently work with a wide range of creative businesses and have managed a considerable number of successful R&D tax credit claims on their behalf. Our team manage the process from end-to-end, to ensure complete familiarity with your business, team and processes. We then manage both the technical report writing and financial analysis before supporting the R&D claims to HMRC. Our experienced Innovations tax relief team then manage all communication with HMRC, ensuring a trouble-free experience for clients.
To access the full GOV.UK report, click here.
If you’re interested in understanding whether your creative business would be eligible for an R&D tax credit contact the Creative Sector team today on 020 8138 5560.
HMRC have further updated their guidance regarding the changes to the R&D tax credit regime for SMEs from 1 April 2021.