The latest Government figures for the R&D tax scheme, covering the 2022/23 tax year, reveal a sharp decline in the number of R&D tax claims compared to the previous year – a decrease of 21 per cent.
This is unsurprising for several reasons, not least because of the reluctance of businesses and their accountants to submit claims under HMRC’s enhanced compliance programme.
On the surface, this significant decrease in claims in 2022/23 seems like new regulations and uncertainty within the scheme have negatively impacted some potential claimants, resulting in fewer claims and causing eligible businesses to miss out on credits.
However, this is not necessarily the case.
R&D tax credits
While the number of claims submitted in 2022/23 took a sharp downturn, the total amount claimed in credits actually rose by one per cent to £7.5 billion.
At the same time, the amount of R&D Expenditure Credit (RDEC) claimed rose by seven per cent, alongside a rise in the number of claims above £250,000.
What this shows is a substantial rise in credits awarded per claim – up by almost 28 per cent.
From this, we can reasonably assume that more high-value claims are being submitted and accepted – indicating a shift in priorities towards large-scale innovation projects in key sectors such as green energy.
However, at the other end of the scale, the data paints a more ambiguous picture, which could illustrate a substantial challenge facing SMEs.
SME relief claims
While high-value claims and credits awarded under RDEC both rose, smaller claims under £15,000 and claims for SME R&D tax relief both fell significantly.
It is certainly possible that some SMEs chose to claim under the RDEC scheme, particularly for higher value claims – but it seems more likely that many have been discouraged from claiming by the changes made to the R&D tax scheme, including the prospect of an HMRC investigation into compliant claims.
If this trend continues, we may see credits under the merged scheme (for SMEs that are not loss-making and R&D-intensive) disproportionately awarded to larger firms – undermining the aim of rewarding and incentivising innovation at all levels.
As advisers and accountants, we can take steps to combat this.
When advising SMEs, it is important that you take the time to review their work and identify potential claims. The current climate may be discouraging to them, but many SMEs have undertaken innovative qualifying work.
Need help preparing R&D tax claims for your clients? Contact our advisory team today.
