This blog summarises the most recent HMRC Research and Development Tax Credits Statistics Report and provides information on the number and cost of R&D tax credit claims for a specific financial year (latest available: 2022-2023). Claims for that year can still be submitted and the figures are provisional. Statistics for previous years have been revised and tax year 2022-23 may change in future publications.

Key Takeaways:

• The provisional estimated amount of total R&D tax relief support claimed for the tax year 2022 to 2023 was £7.5 billion, an increase of 1% from the previous year. This corresponds to £46.7 billion of R&D expenditure, 4% higher than the previous year.
• The amount of tax relief claimed through the SME scheme fell by 3% compared with the previous year, while the relief claimed through the RDEC scheme increased by 7%.
• The provisional estimated total number of R&D tax credit claims for the tax year 2022 to 2023 was 65,690, a decrease of 21% from the previous year. The decrease occurred in both schemes. The most notable impact was in the SME scheme, where the volume of claims is 23% lower than the previous year. In comparison, claims for the RDEC scheme fell by 9%.
• There is an above average drop in the number of claims up to £15,000 and an increase in the number of claims above £250,000. This has resulted in a 28% increase in the average claim value compared to the previous year. This explains why despite a large drop in the volume of claims the total cost has grown slightly.
• There is a concentration of claims by companies with registered offices in London (23% of total claims and 32% of total amount claimed), and the South East (15% of total claims and 18% of total amount claimed). However, the registered office location may not be where all the R&D activity takes place.
• The Information & Communication, Manufacturing, and Professional, Scientific & Technical sectors continued to have the greatest volume of claims, making up 67% of total claims and 70% of the total amount claimed for the tax year 2022 to 2023.
• The figures for the latest available year, for accounting periods in the 2022 to 2023 tax year, are based on R&D relief rates prior to the reform of the R&D reliefs, but do include impacts of some administrative changes made to the schemes in order to improve levels of compliance in the R&D reliefs.

Number of R&D claims for tax year 2022-2023

For the tax year 2022 to 2023, an estimated total of 65,690 R&D claims were made, representing a 21% decrease from the previous year. This figure includes 55,325 claims under the Small or Medium-sized Enterprise (SME) scheme and 10,365 under the Research and Development Expenditure Credit (RDEC) scheme.

Breaking down the SME claims: 23,805 were solely for a deduction from Corporation Tax liability, while 31,520 involved a payable tax credit element. This marks a 23% decline in SME claims compared to the previous year.

Under the RDEC scheme, 3,675 claims were submitted by large companies, while 6,690 were made by SMEs that could not claim under the SME scheme, often due to subcontracting or subsidised R&D. This shows a 9% decrease in RDEC claims, with large company claims down by 11% and SME claims under RDEC falling by 9%.

The significant drop in R&D claims, particularly within the SME scheme, is attributed to the introduction of the Additional Information Form (AIF). This form, which became mandatory for all claims submitted to HMRC from 8th August 2023, requires companies to provide more detailed information. Its introduction, along with other administrative changes, aims to improve compliance in R&D relief schemes.

Amount of R&D tax relief claimed for tax year 2022-2023

For the tax year 2022 to 2023, the total R&D support claimed through both schemes is estimated at £7.5 billion, a 1% increase from the previous year’s £7.4 billion. This is made up of £4.5 billion claimed through the SME scheme and £3 billion through the RDEC scheme, with £2.5 billion claimed by large companies and £545 million by SMEs under RDEC.

While the number of SME claims is higher, the average claim size is typically larger under the RDEC scheme. Total support through the SME scheme decreased by 3% compared to the previous year, but RDEC support increased by 7%, continuing a trend from previous years.

Regional and industry sector analysis for R&D claims

For the tax year 2022 to 2023, R&D tax credit claims were concentrated among companies with registered offices in London, accounting for 23% of total claims and 32% of the total amount claimed. The South East followed with 15% of claims and 18% of the amount claimed, while the East of England contributed 10% of claims and 12% of the amount. These regional distributions are consistent with previous years, though the registered address may not reflect where the actual R&D activity took place.

There is a concentration in the number of claims in the Information & Communication (25%), Manufacturing (24%) and Professional, Scientific & Technical (17%) sectors, accounting for 24%, 22% and 24% of the total amount claimed, respectively. These trends remain similar to previous years.

R&D Claims saw a shift in value in the the 2022-23 tax year

There has been a significant decrease in the number of R&D claims valued at up to £15,000 and an increase in claims over £250,000, particularly within the SME scheme. As a result, the average claim value has risen by 26% in the SME scheme and by 18% in the RDEC scheme compared to the previous year. This trend explains why, despite a large reduction in the number of claims, the overall cost of the schemes has slightly increased.

What does this mean for UK SMEs?

Charlotte Buxton, our Head of Tax, shared her thoughts today on the latest R&D statistics for the 2022-2023 tax year:

We’re seeing a noticeable shift towards larger R&D claims (Over £250k in claim value), with fewer smaller claims being submitted (below £15k), but an overall increase (4%) in the value of R&D expenditure (£46.7 billion) from the previous year.

This appears to be a combination of recent administrative changes to the schemes, which may be putting off some claimants and advisors due to the additional work and risk of enquiry which has risen to roughly 1 in 5 claims on average. It also appears that HMRC has been placing scrutiny on lower-value claims, especially searching for those that don’t meet R&D criteria.

I do believe these changes will incentivise the right type of claims, but I also worry that they might deter smaller startups from claiming, as the fear of potential enquiries could hold them back.

 

Gary Jesson, FD agrees with Charlie and suspects that fear amongst genuine claimants around compliance checks and the liability to pay back any benefit received is too much of a risk.

R&D is a key part of cashflow and fundraising for early-stage tech companies. Without it, securing other investments can become more difficult. With the right advice in place and a credible R&D tax advisor, a valid claim should be claimed!

Their combined insights shed light on important shifts within the R&D tax landscape and how recent changes are impacting both claimants and the types of claims being submitted.

How have the rate changes to the R&D Scheme impacted tax year 2022-23?

In the 2022 Autumn Statement, changes to R&D relief rates were announced, effective from 1 April 2023. The SME enhancement rate was reduced to 86% and the SME credit rate to 10%, while the RDEC rate increased to 20%. In Spring 2023, it was confirmed that the 14.5% SME credit rate would be retained for R&D-intensive SMEs (those with 40% or more R&D expenditure), effective from the same date.

From 1 April 2024, the two previous R&D relief schemes (the SME scheme and RDEC) were replaced by a single expenditure credit scheme for all companies, with an alternative option for R&D-intensive, loss-making SMEs under the Enhanced R&D Intensive Support (ERIS) scheme, which lowers the R&D intensity threshold to 30%.

These changes are not yet reflected in current statistics for the 2022-2023 tax year. Statistics under the new rates will be published in 2025, and information on the merged scheme and ERIS will be available in 2026.

Supporting you through the R&D scheme changes

The HMRC R&D Tax Credit scheme has undergone significant changes, which has been overwhelming and confusing for businesses that rely on these credits to support their research and development efforts. However, MPA has recognised this issue and taken steps to make it easier for businesses to stay informed about all the changes. We have put together a comprehensive knowledge hub that is entirely dedicated to the R&D Tax Credit changes. The hub has been designed to provide you with all the latest news and updates regarding the R&D Tax Credit scheme in one convenient space, making it easier to stay up to date, helping to inform your business decisions