Based on HMRC’s latest update, released last week (28th September), UK businesses continued to make major strides in the world of Research and Development, and the number of claims reflects that commitment to innovation. 2021-2022 saw impressive surges in activity: the estimated total R&D tax relief support claimed soared to £7.6 billion, marking an 11% increase from the previous year. This corresponds to a substantial £44.1 billion in R&D expenditure, showing an 8% uptick.
Moreover, the total number of R&D claims rose significantly, driven by increased claims in both SME and RDEC schemes.
Notably, there’s been a 6% boost in the average value of claims in 2021 to 2022, with the SME scheme leading the way with a remarkable 9% increase. This may be attributed to businesses bouncing back from the COVID-19 pandemic, which affected R&D activities in the previous year, but may also be indicative of increasing confidence claiming under the scheme. Confidence, we hope, isn’t lost due to more recent changes to the claiming procedure.
The data included in this article is pulled directly from a ‘National Statistics’ publication produced by HM Revenue and Customs (HMRC).
It provides information on the number of companies claiming Research and Development (R&D) tax credits and the associated cost to the Exchequer for claims covering accounting periods that end in a particular financial year, in this case 2021-2022.
Claims for the tax year 2021 to 2022 can still be submitted past the cut-off date for this publication. Statistics will be revised in next year’s publication to include claims received after the cut-off date, which can sometimes result in large changes between the publications. Similarly, this year’s HMRC publication will revise figures for tax years 2019 to 2020 and 2020 to 2021.
The next release is planned for Autumn 2024.
The latest data reveals a concentration of R&D tax credit claims in the lower cost bands, with approximately 69% of claims falling within the cost bands up to £50,000. This concentration predominantly corresponds to claims made under the Small and Medium-sized Enterprise (SME) scheme, where businesses typically have lower R&D budgets. This highlights the prevalence of R&D activity happening within smaller enterprises that might not typically view themselves as ‘R&D companies’.
In essence, this analysis illustrates a dual pattern: a high volume of claims in the lower cost bands driven by SMEs and a concentration of substantial claims in the ‘Over £2 million’ band, typically attributed to larger corporations. This distribution reflects the diversity in R&D tax credit claims, catering to businesses of varying sizes and R&D capacities.
Resource Allocation: Over the past three years, HMRC has significantly increased the number of staff dedicated to R&D compliance. This includes an additional 300 people specifically addressing non-compliance.
Creation of R&D Anti-Abuse Unit: In July 2022, HMRC established a dedicated R&D Anti-Abuse Unit to tackle incorrect claims and investigate complex cases.
Additional Measures: HMRC has introduced various measures, including payment identification and verification controls, to ensure that claims are legitimate. These efforts aim to pay 85% of payable claims within 40 days.
Policy Changes: The government has announced policy measures to counter non-compliance, such as requiring digital claims, requesting additional information to identify high-risk claims, and reducing payable relief in the SME scheme for offshore companies with minimal UK operations.
Use of agents: HMRC has acknowledged the role of agents (R&D Consultancies) in the R&D tax relief scheme and works with professional agents and bodies to improve the quality of advice.
Improving Insight and Risk Assessment: HMRC employs a risk-based approach to non-compliance, assessing claims based on risk levels and behaviours. They continuously seek feedback from customers and leverage data and qualitative insight to refine their risk assessment processes.
That’s all the interesting information from HMRC’s latest update. All in all this should be looked on favourably from an R&D claimant’s perspective: From number of claims under the scheme, to overall expenditure, R&D has scaled upwards across the UK. Claim values have increased significantly, and particularly in the RDEC scheme, adoption by businesses continues to trend upwards.
The only major concern for businesses moving forwards, is around adjustments to the scheme in terms of SME claim value and increased compliance/process steps involved in making a claim, particularly a first claim. We’ll continue to advocate on behalf of businesses of all sizes and add services to cater for smaller businesses in a changing landscape.
R&D Tax Services is a research and development tax consultancy, helping innovative businesses across a wide range of industries claim the R&D tax relief they deserve.
Our team recognises the importance of R&D in advancing UK businesses, big and small, and we understand the time burden, resources and complexities of claiming tax relief for that R&D. These constraints often leave companies failing to get the tax relief they’re entitled to or under-claiming significantly due to unclear, often confusing guidelines about what constitutes R&D. As experts in R&D tax relief, we’re here to unblur the lines and create robust, defensible and maximised claims on your behalf.
We’re experienced tax professionals, accountants and technical experts with a deep understanding of the R&D tax relief regulations. We’ve worked in many of the industries we now serve and are ideally placed to understand your business’ R&D Activities. As part of HMRC’s panel on R&D, we stay up-to-date with the latest developments in the guidance, to provide our clients with the most accurate and up-to-date advice.