Your trusted adviser for R&D Tax Credits, Creative Tax Relief, and R&D Grants
Barrie Dowsett ACMA, CGMA, MiP
Chief Executive Officer at Myriad UK and leading R&D Tax Expert with over 23 years of experience in making claims.
A Decrease in Overall Claim Numbers: The total number of R&D tax credit claims dropped by 21%, with the sharpest decline in the SME scheme, where claims fell by 23%. This fall, attributed to compliance measures and the Additional Information Form (AIF) introduction, suggests that smaller businesses or speculative claims have been discouraged from applying. This also aligns with HMRC's ongoing efforts to reduce error and fraud.
R&D Relief by Scheme: Interestingly, while the number of claims under the SME scheme decreased, the Research and Development Expenditure Credit (RDEC) scheme saw a 7% increase in the amount of relief claimed. This reflects that while the SME scheme is facing greater scrutiny and barriers to entry, larger companies are continuing to leverage RDEC to invest heavily in R&D.
Total Relief Claimed: The UK government's support for innovation continues to grow, with £7.5 billion in R&D tax relief claimed for the 2022-2023 tax year, a 1% increase from the previous year. This reflects £46.7 billion in R&D expenditure across all businesses. However, behind this modest growth lies a more profound shift favouring large companies.
Rising Average Claim Size: The average size of R&D tax credit claims has surged by 28%, driven by a significant increase in claims exceeding £250,000. This rise is especially notable given the overall reduction in claims, highlighting a concentration of relief for large companies and projects.
Barrie Dowsett ACMA, CGMA, MiP, Chief Executive Officer, Myriad
The Dominance of Innovation Hotspots: London and the South East continue to dominate regarding the number of claims and the value of relief. London accounted for 23% of total claims and 32% of the total amount claimed, with the South East contributing 18%. While this concentration highlights innovation hotspots, it also provides an interesting barometer for the government to focus on innovation hubs north of the M25.
Sectoral Trends: The Information & Communication (25%), Manufacturing (24%), and Professional, Scientific & Technical (17%) sectors remain the top three industries claiming R&D relief. These sectors are known for high levels of R&D activity, and their dominance reflects a continued focus on technological innovation and industrial development. However, sectors such as Wholesale, Retail, and Education saw significant reductions in claims, mainly due to HMRC's targeted efforts against ineligible claims.
The introduction of the Additional Information Form (AIF) in August 2023 has significantly impacted the R&D tax credit landscape. The AIF requires businesses to submit detailed project descriptions and justifications for their claims to improve compliance and reduce fraud. This has led to a notable drop in claims valued at less than £250,000, especially among SMEs.
First-Time Claimants Decline: First-time claimants have decreased by 18% compared to the previous year. This drop raises concerns about potential barriers for new or smaller businesses, which are often the most innovative but may need more resources to navigate complex tax credit applications. For start-ups and scale-ups, the increased administrative burden could deter them from claiming, impacting their growth potential.
A Shift Towards Larger Projects: With claims for smaller amounts decreasing, businesses may consolidate their efforts into larger R&D projects to ensure compliance with new regulations and maximise the relief's benefit. This shift could lead to a more focused use of R&D tax credits, with companies dedicating more resources to high-value innovation.
When the 2023/24 HMRC R&D tax statistics are published next year, they will undoubtedly show a further decline in the number of SME claims/values and an increase in large company claim values. This is because of the tax relief rates that occurred on 1 March 2023.
Potential Impact of Rate Changes: The SME additional enhanced R&D tax relief rate was reduced from 130% to 86% (down by 33%), and the tax credit payable rate was decreased from 14.5% to 10% (down by 31%). R&D Intensive SMEs get some rest bite, as the R&D tax credit payable amount remains at 14.5%. The RDEC rate for large companies was increased to 20% (from 15%) of eligible expenditure, giving an after-tax net income rate of 15% after considering a corporation tax of 25%.
In addition, the Merged R&D Scheme and SME Intensive Scheme (ERIS) come into play for accounting periods starting on or after April 1, 2024, and adopt the RDEC rate. However, R&D-intensive SMEs will still have access to enhanced support through ERIS.
Long-Term Stability is Needed: Businesses call for stability in the R&D tax credit regime. Frequent rate changes, increased compliance requirements, and mismanagement have created uncertainty, making it difficult for companies to plan long-term innovation investments. A period of regulatory stability and HMRC seeking advice from industry bodies about scientific and technological baselines would provide much-needed confidence for businesses to continue investing in R&D.
If you have any questions or need assistance with your R&D tax credit claim, feel free to call us at 0207 118 6045 or message us, and we'll be pleased to call you back.
We're here to help guide you through the complexities and ensure you maximise your R&D investments.
Learn about HMRC's claim notification form for R&D tax relief, including eligibility, deadlines, and submission requirements for first-time claimants.
Please contact us to discuss how working with Myriad can maximise and secure R&D funding opportunities for your business.
Contact us
hello@myriadassociates.com