The Treasury has released the latest R&D tax claim figures for the 2022/23 tax year – revealing a fall in claims and relief claimed under the SME scheme.
The volume of claims for SME R&D tax relief fell by 23 per cent from 2021/22 and the amount of relief claimed fell by three per cent, compared to a rise of seven per cent under the RDEC scheme.
It seems that SMEs are struggling to keep up and make successful claims for R&D tax relief or credits. The value of each claim rose by 28 per cent, but still SMEs are lagging behind.
Challenges facing SMEs
SMEs may face a number of challenges in the field of R&D, which may explain why the number of claims from this sector has dropped so drastically.
SMEs can struggle to enter the R&D space in the first place for several reasons, including:
- A lack of cash reserves and investment compared to larger companies
- Difficulties accessing leading talent and knowledge
- Higher costs due to lower economies of scale
- An administrative burden borne by few people
2022/23 may have amplified these challenges, particularly relating to cost as inflation and the cost of employing staff rose sharply at this time.
The value of credits per claim has risen sharply in 2022/23 on the previous year, suggesting that larger projects make up the bulk of claims – and that larger businesses with access to more capital are making these claims.
Such issues may have contributed to a fall in R&D among SMEs due to the high financial commitment of R&D projects.
Credits or relief
Beyond the cost of R&D work, it is possible that the scheme itself has become less appealing to SMEs and that some are choosing to claim credits instead.
The SME R&D tax relief scheme offers a generous deduction allowance, but only offers credits if a loss has been made by the business after relief has been claimed.
Some businesses that, while qualifying as an SME, have not made a trading loss may well have chosen to access the RDEC scheme instead of applying for relief.
This seems to reflect the idea behind the merged scheme, which will provide credits for all except loss-making, R&D-intensive SMEs.
Are SMEs struggling to access R&D tax credits? It is possible, but it is also likely that SMEs are seeing the value of tax credits and choosing to reinvest in further R&D projects.
As advisers working with R&D accountants, our role is to make the preparation and submission of claims as easy and straightforward as possible – and that starts with working with you!
To access our bespoke R&D help for accountants, please contact our team today.
