Take-up of R&D tax relief amongst UK manufacturers is disappointing and signals serious shortcomings in the Government's efforts to encourage innovation in the UK, it has been claimed.
The latest survey from the EEF and CBI reveals that only a fraction of companies have claimed the tax relief to which they are entitled and only a handful more plan to claim.
According to Deloitte, UK manufacturing is missing out on multi million pound claims each year.
The business advisory firm warns that finance directors of UK manufacturers are likely to continue to miss the opportunities because in many cases they either do not appreciate the breadth of the relief or they see the process as difficult and bureaucratic.
In some cases they cannot garner support within the company because the benefit arises in the tax charge whilst most company reward systems are based on increases in profit before tax.
Over recent years the UK has slipped down the R&D league table behind the rest of Europe and many countries around the world. US and European companies devote
4.9 per cent and 3.7 per cent respectively of their revenues to R&D compared to 2.3 per cent in the UK.
In 2002 the Government took action against the flagging record and extended the existing R&D tax regime for small and medium sized companies to include larger companies in order to reduce the cost of R&D and drive British competitiveness.
Andrea Howl, R&D tax services partner at Deloitte in Birmingham said: "We've hit a real low in innovation and its time to step up and get back in the game.
"Giving money back to those investing in R&D makes a lot of sense, but more needs to be done to show UK manufacturers and their finance departments how this can be achieved."
CBI and EEF research has shown that R&D tax credits are saving UK companies less than half the amount predicted.
Although the headline benefit is 7.5 per cent for large companies and 9.5 per cent to 15 per cent for small companies, the fact that many R&D costs are not included in the relief takes the effective benefit down below 4 per cent.
This takes it below the "noise" level and so does not attract the attention of the board, Ms Howl said.
Despite Government targets to increase UK spending on R&D from 1.9 per cent GDP, to 2.5 per cent GDP by 2014, Deloitte believes a further big push is needed to help UK manufacturers better understand what's in it for them.
Ms Howl said: "The confusion is sometimes made worse by HMRC inspectors on the ground who do not understand the technology and apply an unreasonably high threshold which is not consistent with the published DTI definition.
"UK manufacturers still do a lot of innovative work but are missing out on a real lifeline and extra cash injection.
"For loss making companies the position is even worse as increasing the amount of loss carried forward is unlikely to provide any incentive to increase R&D spend, yet that may be just what the company needs to turn itself around."