R&D Tax Credits – New Government stats reveal claims are down

The government has released its latest R&D Tax Credits Statistics update for September 2024, and there have been some striking developments in the world of R&D tax reliefs, which is not surprising given the volume of recent changes to the R&D Tax Credit regime.

R&D Tax Relief claims are on the decline

The headline figure of the government’s latest statistics shows that the total number of R&D claims for the tax year 2022 to 2023 is estimated to be 65,690, a 21% decrease from the previous year. 

• There were just over 55,000 claims under the SME scheme in this period, a drop of 23%. 

• Total claims under the RDEC scheme decreased by 9%, driven by an 11% drop in large company claimants and a 9% decrease in SMEs making RDEC claims. 

Further decreases are likely for 2023/24 following the reduction to the value of reliefs from 1 April 2023 and the introduction of the mandatory Additional Information Form (AIF) on 8 August 2023. 

Image: Research and Development Tax Credits Statistics: September 2024 - GOV.UK (www.gov.uk)

Despite fewer claimants, the value of total claims remains strong 

Interestingly, while there was a steep decline in the number of claims made in 2022/23, the total monetary support claimed through the R&D schemes in the same period was up by 1%, a total of £ 7.5 billion. 

• £4.5 billion was claimed through the SME scheme (down by 3%) 

• £3 billion was claimed through the RDEC scheme (up by 7%) 

• Of this, £2.5 billion was claimed by large companies and £545 million by SMEs. 

As is typical, the SME scheme continues to see a higher volume of claims, but with lower total value. Meanwhile, the total value of claims under RDEC is considerably higher. 

Qualifying R&D expenditure rises. 

The estimated qualifying R&D expenditure in 2022/23, as defined by HMRC’s definitions of R&D, was £46.7 billion. This is a 4% increase from the previous year. 65% of this qualifying expenditure was claimed through the RDEC scheme. 

Manufacturing, ICT and science continue to dominate claims 

Similarly to previous years, the majority of R&D claims are concentrated in the following sectors: 

• Information & Communication: 25% of claims, accounting for 24% of the total amount claimed. 

• Manufacturing: 24% of claims, accounting for 22% of the total amount claimed. 

• Professional, Scientific & Technical: 17% of claims, accounting for 24% of the total amount claimed.

Continued decline in R&D tax relief claimants expected 

For the 2021/22 tax year, there was an 18% decrease in first-time R&D tax relief applicants. This was the third year in a row that first-time applicants had declined. The SME scheme saw a decline of 19%, while the figure for RDEC was 11%. 

Preliminary data for 2022/23 suggests this downward trend is continuing; however, government figures are provisional and subject to revision next year.

What does all this mean for innovative businesses?

The latest figures show a decrease in SME claims, partly due to HMRC's more vigorous approach to compliance. A further reduction is expected in 2023/24, likely due to the reduction in the value of the reliefs and the additional information now required by HMRC. 

In simple terms, R&D Tax Relief claims are becoming trickier, and businesses submitting error-strewn or fraudulent claims are caught out. 

However, if you are undertaking legitimate R&D projects, it is still important that you look into your eligibility. The relief the UK’s R&D Tax Relief schemes provide is very generous and an invaluable tax planning tool for companies looking to save money. 

But getting the right advice from a qualified specialist with a deep understanding of all the legislation has never been more crucial.