Mark Frost
17 October '23

5 minute read

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HMRC has recently released its R&D claim statistics for the tax year 2021 to 2022, Our Innovation Team has been taking a closer look at the detail.

Whilst claims for 2021 to 2022 can still be submitted, meaning there may be some slight movement to the final statistics for the period, the headline takeaways are:

  • Total R&D tax relief claimed was up 11% on the prior year, comprising £7.6 billion.
  • Total expenditure on R&D was £44.1 billion, an increase of 8% from the prior year.

It’s notable that 60% of the £44.1 billion related to RDEC claims. Of the 11,115 RDEC claims made in the year, 4,695 claims were from Large Companies and 6,420 claims from SMEs claiming under the RDEC scheme, because they are undertaking the R&D as subcontractors or the R&D was subsidised. There was also a 6% increase in the number of RDEC claims since last year, driven by an increase in the number of Large Companies claiming RDEC.

The total number of claims (both SME and RDEC) was up 5% from the prior year, with 90,315 claims submitted.

Might this reflect a post-Covid push for cash by firms across sectors? The 2022- 2023 statistics may show a change in claimant behaviour following the widespread changes in rates and scrutiny which we are currently seeing in practice, but again, that impact won’t have hit the 2021 – 2022 figures.

The average value of claims was up 6%, mainly led by an increase of 9% to SME claims (possibly due to a bounce-back post-COVID).

Given the significant reduction in SME rates which we now know has been introduced, but which are not yet reflected in these statistics, this may indeed be a post-Covid reaction. Again, watch this space for the effect of the rate changes on SME claimants.

London and the South-East remain hotspots for R&D activity, making up 22% and 15% of total claims respectively (representing 32% and 18% of total relief claimed).

As ever, on paper most claims originate from the South-East, however, the registered company address is not always where the R&D takes place, so the geographical information in the statistics can be taken with the proverbial pinch of salt.

IT, Manufacturing, and Professional, Scientific & Technical sectors continue to form the bulk of R&D claims and relief, with 62% of claims and 67% of relief being claimed by these sectors.

The Manufacturing and IT sectors account for the most tax credits claimed and the number of claims by sector.

Digging deeper into these figures, we see that for 2020 to 2021 (the last year for which data is available), the number of first-time SME claimants decreased year-on-year for a second time, with a 3% reduction. In contrast, the number of first-time RDEC claimants has increased by 14%. It is possible that the number of first-time RDEC claimants has partly increased due to HMRC’s stance on subsidised/subcontracted expenditure, forcing claimants into the RDEC scheme?

Interestingly, the number and value of small claims has decreased since the prior year. In 2021 to 2022, there were almost 14,000 claims under £5,000, compared to almost 16,000 in 2020 to 2021. This could be the first sign of the effects of HMRC’s additional scrutiny, which began in earnest in March 2021 with the then Chancellor, now Prime Minister, announcing additional resources to counteract fraud and error in the system. Also, following HMRC’s aggressive target-all enquiry approach, we are not entirely surprised that the number of first-time SME claimants and the number and value of small claims has reduced. It could also be speculated that an alternative cause of this decrease is the crack-down from HMRC on nonsense marketing techniques from a handful of R&D agents (we’re thinking the likes of those targeting the care home sectors or claiming that R&D can be found within baking blueberry muffins!).

Changes in rates, announced earlier this year and taking effect in practice from 1 April 2023, have yet to be reflected in any statistics as they were introduced after the tax year under consideration here. It is not unreasonable to expect though, that the number of SME claimants may fall because of the rate of benefit reducing to 86% from the long-standing, generous 130% we have seen for many years. Perhaps the word on the street is already having an effect, given that in 2021 – 2022 there is already a 1% decrease in the overall number of first-time applicants to the R&D relief scheme – are SME companies already questioning the benefit of such a claim?

As ever, statistics can mean whatever someone wants them to mean. The 2021-2022 figures appear to show a tipping point in relation to SME – and we will keep a watching brief as to how the subsequent sea change in HMRC’s treatment of these claimant companies is shown in the coming year’s analysis. Similarly, RDEC’s increase in rate, and the strong likelihood of a merged scheme, may soon be showing in the figures as the entire scheme’s focus changes.

Don’t forget the CP Innovation team is available if you want to discuss making a R&D claim.