How does an innovative business’s sector impact an R&D tax relief claim?

There is often a question asked by innovators and accountants regarding how HMRC views the sector in which a business operates and from which an R&D tax relief claim arises when determining the validity of the claim.

Outside of some specific examples, many sectors have the possibility of conducting valid R&D work, but it is clear that R&D is expected from some more than others.

Using the recently released R&D tax credit statistics, it should be possible for accountants to gain a better understanding of how their client’s sector will impact an R&D tax relief claim.

Which sectors are the biggest sources of R&D?

More than half of all R&D tax relief claims come from two sectors, meaning that businesses operating in these fields should be working to make the most of the funds available.

Manufacturing is responsible for 27 per cent of claims and 27 per cent of the value of relief, while Information & Communication also makes up 27 per cent of claims, but a slightly more modest 20per cent of relief value.

In at a close third, the Professional, Scientific & Technical sector makes up 20 per cent of the claims and 24 per cent of total relief value.

None of these three sectors should be particularly surprising in that they are the default areas that one would expect R&D to originate from.

Something else revealed by the R&D statistics is that claims from sectors that are less likely to qualify have dramatically fallen.

Claims from Accommodation & Food, Real Estate, Education, Wholesale & Retail Trade, Repairs and Health & Social Work have dropped by 75 per cent since the 2021/22 financial year.

While this is unlikely to have a profound impact on the overall number of claims being submitted, the reduction in claims from these sectors is further indication that efforts to remove error and fraud have been successful.

How should accountants approach working with clients from different sectors?

A clear takeaway from the statistics should be that accountants who work with companies in any of the big three sectors should be considering how R&D tax relief support can fit into their current working relationship.

However, this is not to say that every business operating in these sectors will be conducting valid R&D and even those businesses that do will not be able to claim for work that fails to meet HMRC’s criteria.

It should mean that conversations are had between accountants and innovative businesses to ensure that R&D tax reliefs are accessed where appropriate so that innovation can continue to be funded.

Work conducted outside of those sectors should not be written off entirely, though it is worth noting that HMRC may be more sceptical of R&D tax relief claims that originate from unlikely places.

Provided the project seeks an advance in science and technology, cannot be readily deduced by a competent professional, involves some degree of technical uncertainty and had work commence in the financial year, it may be a valid piece of R&D.

Getting the support of an expert R&D tax consultant is vital for determining the likelihood of a project to qualify as R&D, as well as getting the support required to compile a valid R&D tax relief claim.

Our expert team are well-versed in crafting R&D tax relief claims that efficiently demonstrate the nature of the work to HMRC and capture all relevant qualifying expenditure.

Should an enquiry arise, particularly if the claim relates to work from a niche sector, our team will defend any valid R&D tax relief claim, even if we did not work on the original submission.

Get in touch for expert R&D tax relief support across any sector.

Adam Bointon

Adam Bointon is a Technical Director specialising in R&D Tax Credits for SMEs in manufacturing and software sectors. With over 15 years’ experience, he works closely with businesses to identify qualifying R&D activities and prepare clear, compliant claims. He combines technical expertise with a strong understanding of economics and finance to support successful outcomes. Adam also contributes to industry webinars and CPD sessions, sharing insights on R&D tax relief and HMRC requirements.