HMRC R&D Tax Credit Statistics 2024

HMRC R&D Tax Credit Statistics 2024

On 24 September, HMRC released their latest statistic on R&D tax credits, providing an understating of innovation across the UK. These figures cover the tax year 2022 to 2023.

R&D tax credits are an incentive to encourage greater spending on R&D in the UK, leading to greater investment in innovation and growth in Gross Domestic Product (GDP). As a result, these statistics provide a useful guide as to innovation across the UK.

The key stats

  • Qualifying R&D expenditure increased by 4%

    The total spend on R&D qualifying activities across the UK increased to £46.7 billion, resulting in increased support from HMRC of 1%, from £7.4 billion to £7.5 billion.

  • Total number of claims decreased by 21%

    While qualifying spending increased, this is generally seen within larger businesses and claim sizes. The number of claims by SMEs exceeded the average decrease, with a drop in claims of 23% compared with the previous year. Comparatively, the number of RDEC claims only reduced by 9%.

  • The average claim value has increased by 28%

    This position is inflated by the number of small claims (£15,000 or less) significantly decreasing by around 30%. This is likely due to the compliance measures implemented by HMRC outlined below.

Innovation across the South West

The South West is the 6th largest region claiming R&D tax credits across the UK, representing approximately 8% of claims made and a total of £335 million of qualifying expenditure being incurred in the period. Of the claims made in the year, SMEs represented 96.6% of all claims, submitting a total of 4,830 claims across the SME and RDEC scheme.

The figures are based on a Company's registered office, of which there is a concentration of companies making claims in London. The registered office location of an entity may not be where the R&D activities have taken place, so it is difficult to draw conclusions regarding innovation across the South West based on these figures alone.

The South West still appears to be a strong technology cluster with various incubators across Bristol and further afield. The investment backdrop across the South West in 2023 showed a decline in investment of 50% in the region compared with 2022 figures, which could result in lower qualifying spending. R&D tax credits can support innovative companies by providing a cashflow advantage in the form of a tax credit from the Government.

Compliance measures put in place by HMRC

In recent periods HMRC have been targeting fraud and abuse of the R&D tax credit scheme, implementing new compliance measures which may explain some of the statistics released.

HMRC previously reported that claims with expenditure of less than £10,000 showed the greatest risk of non-compliance, with up to 75% of the claim being non-compliant. This may explain some of the reduction in SME claims, particularly those valued less than £15,000.

In addition, there has been an above average decrease in the number of claims across four sectors, being Wholesale & Retail Trade, Repairs, Accommodation & Food, Real Estate and Education. These are sectors HMRC previously highlighted low levels of compliance, with the Education sector only estimated to have 11% of claims which were compliant.

Our understanding is up to 1 in 5 R&D claims are currently being enquired into by HMRC to ensure they are compliant. However, this is based on a targeted approach based on certain factors around which may include the company's Standard Industrial Classification (SIC) code, which would align with the above statistics.

Future measures implemented by HMRC

In the 2022 Autumn Statement, changes to rates applicable for R&D claims were announced, taking effect for expenditure from 1 April 2023 onwards. The SME enhancement rate was decreased from 130% to 86% and the SME credit rate reduced from 14.5% to 10%. At the same time, the RDEC rate was increased from 13% to 20%. For a loss making company claiming under the SME scheme, this represented a decrease in the scheme benefit of 44%, from 33p for every £1 of qualifying spend to 18.6p.

Further changes were announced in Spring 2023 which included maintaining the 14.5% SME credit rate for R&D intensive SMEs, being those companies with 40% or more of total costs qualifying for the R&D claim. This represents a benefit of 26.9p for every £1 of qualifying spend.

For accounting periods starting on or after 1 April 2024, we move onto the new merged scheme, removing the SME and RDEC schemes, while the SME intensive scheme remains operational with a reduced intensity threshold of 30%. The new merged scheme will represent a benefit of 16.2p for every £1 of qualifying spend for loss making entities.

With increased compliance measures, such as the Additional Information Form, and the ongoing changes to the schemes adding further complexity and risk, there has been an 18% decrease in the overall number of first-time applicants from the previous year. This is the third consecutive year that the overall number of first-time applicants has decreased. With increased hurdles for first time claimants, such as the pre-notification requirement for accounting periods starting on or after 1 April 2023, we may expect to see further drops in the number of first time applicants in future periods. Overall, this will not assist those innovative start ups, who may be deterred from claiming and are in greater need of support for the R&D efforts.

The impacts of the above changes are not yet fully reflected in the statistics in this publication, which cover claims up to the tax year 2022 to 2023.

Source

A useful example

https://forrestbrown.co.uk/news/hrmc-r-and-d-tax-credit-statistics-2024/

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