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Telecoms sector R&D investment outperformed UK industry as a whole in first quarter of 2021

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R&D spending in the telecoms sector held firm in the first quarter of this year despite the disruption caused by the pandemic, analysis of the latest ONS data, released yesterday, by business tax relief consultancy Catax shows.

The information and communication industry invested £793m in R&D between January and March this year, representing no change on Q1 2020.

This was only marginally down (0.5%) on Q4 2020 but is still some way short of the sector’s record high of £876m recorded in Q1 2017, kicking off what became a record year as R&D investment reached £3.5bn. The figures are not adjusted for inflation, however, with CPI running at 0.7% in the year to March 20212, so this will have a marginal impact.

Despite being flat on an annual basis, the telecoms sector’s performance in the first quarter was better than UK industry as a whole. Total R&D spending by UK businesses dropped 3% annually to £9.7bn in Q1. UK GDP in Q1 2021 was down 1.6% on the previous quarter3.

The industry had defied expectations last year overall, with a 1.4% rise in R&D investment despite the pandemic, increasing to £3.18bn in 2020 from £3.14bn in 2019.

Many of the industry’s members will benefit from R&D tax credits on qualifying spending. This tax relief was introduced by the government in 2000 to incentivise innovation, and results in either a reduction in a limited company’s corporation tax bill or a cash lump sum.

Many firms don’t realise the work they do qualifies as R&D, which is defined as any work that seeks to resolve a scientific or technological uncertainty, whether that’s a new process, product or service. Crucially, R&D work does not need to have been successful to qualify and claims can be made up to two years beyond the end of the tax year in which the work took place.

Mark Tighe, CEO of R&D tax relief consultancy Catax, comments: “The pandemic continues to weigh on business investment of all kinds, and research and development can suffer more than other business areas in times of financial stress. This is a technology-led area and the industry’s level of R&D investment will continue to be a bellwether for its wider prospects long term.”

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