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Explore the latest R&D tax credit statistics from HMRC for the tax year 2021-2022. Insights on expenditure, regional analysis, industry sectors, and the impact of the COVID-19 pandemic on R&D activity.
HMRC has just released its most recent statistics on R&D tax credits for the tax year 2021 to 2022.
For companies keen on understanding the landscape of R&D tax credits, these insights provide a clear picture of trends, regional differences, and sectoral impacts. Let's break down the crucial points:
Overall Growth in Claims: The total provisional amount for R&D tax relief claims for 2021 to 2022 was an impressive £7.6 billion, marking an 11% growth from the previous year. This growth equates to £44.1 billion in R&D expenditure, a rise of 8%.
More Companies Claiming: Provisionally, there were 90,315 R&D tax credit claims made in this period, an increase of 5% from the previous year with both the SME scheme and the RDEC scheme experiencing a rise in claims.
Higher Average Value of Claims: The average value of R&D claims increased by 6% in 2021 to 2022. A notable 9% increase in the SME scheme indicates possible post-COVID-19 recovery, as the pandemic had curtailed normal R&D activities for several businesses in 2020 to 2021.
Regional Concentration: Companies with registered offices in London and the South East made the most claims, although this doesn't necessarily pinpoint the actual locations of R&D activities. London was responsible for 22% of all claims and 32% of the total claimed amount, while the South East accounted for 15% of claims and 18% of the amount.
Leading Sectors: The Information & Communication, Manufacturing, and Professional, Scientific & Technical sectors remain at the forefront, making up 62% of all claims and 67% of the total claimed amount for the tax year 2021 to 2022.
As previously discussed, during the 2021-2022 tax season, HMRC observed a notable uptick in R&D tax claims, registering at a total of 90,315 — a 5% jump compared to last year.
Of these, a significant 79,205 claims were submitted by Small or Medium-sized Enterprises (SMEs). A closer look reveals that 37,455 of these SME claims were strictly for a reduction from CT liability, while the remaining 41,745 include a payable tax credit component.
On the other hand, the Research and Development Expenditure Credit (RDEC) scheme witnessed 11,115 claims. Large corporations accounted for 4,695 of these RDEC claims, indicating a 6% rise from the preceding year. The rest, 6,420 to be precise, were from SMEs who opted for the RDEC scheme. This choice often stems from their role as R&D subcontractors or because their R&D projects receive subsidies, which makes them ineligible for the standard SME scheme.
In essence, this year marked a steady growth in R&D tax relief claims across the board, with both SMEs and larger companies increasingly recognising the benefits.
During the 2021-2022 tax period, total support claimed through both R&D tax relief schemes witnessed an 11% surge, amounting to a hefty £7.6 billion, up from the previous year’s £6.8 billion.
Breaking it down, the SME scheme accounted for £4.8 billion worth of claims, while the RDEC scheme accounted for £2.8 billion. A deeper dive into the RDEC figures reveals large corporations claimed £2.4 billion of the total RDEC claim value while SMEs claimed £415 million from the RDEC scheme. Notably, and as expected, even though the SME scheme garners a higher volume of claims, RDEC typically sees heftier individual claims.
Compared to the previous year, the total support claimed through the SME scheme soared by 14%, and RDEC scheme claims grew by 7%. The overall average claim value also increased by 6%, mainly driven by increased support claimed via the SME scheme.
One possible factor for this growth might be the recovery phase post-COVID-19, especially considering the pandemic potentially curtailed some R&D endeavors. Interestingly, the 2020-2021 tax year didn’t mirror the usual annual growth in R&D relief claims.
It's evident that the cost of support for both SME and RDEC schemes has risen considerably in the recent past, coinciding with relief rates periodically increasing in both schemes. The 2022 Autumn Statement brought several changes: the SME enhancement rate was slashed to 86%, the SME credit rate was lowered to 10%, and in contrast, the RDEC rate was upped to 20%. Subsequent modifications were also announced in the Spring 2023 budget, which preserved the 14.5% SME credit rate for specific companies, effective from 1 April 2023. However, it's crucial to note that due to the lag in R&D data collection, the repercussions of these changes aren’t evident in this report.
For the 2021-2022 tax year, companies reported a considerable £44.1 billion in qualifying R&D expenses to secure R&D tax relief. This denotes an 8% hike from the preceding year. A significant chunk of these expenses, 60% to be exact, came from companies claiming under the RDEC scheme.
This uptick in R&D spending in both schemes could be a sign of revitalised R&D initiatives post-COVID-19. However, it's vital to note that these statistics are preliminary and will undergo revision next year, potentially leading to significant adjustments.
In the tax year 2021-2022, a regional analysis based on companies' registered addresses highlights the geographical distribution of R&D tax credit applications. Importantly, the registered address might not always indicate the actual location of R&D activities.
London stands out with companies headquartered there making up 22% of total claims and accounting for 32% of the total amount claimed. Following closely, the South East represents 15% of all claims and 18% of the overall claimed amount. The East of England holds 11% of the total claimed amount, positioning it as a significant contributor, even though it ranks fourth in terms of the number of claims. Conversely, the North West secures the third spot in the number of claims but comes in as the fourth-largest region in the total claimed amount. These regional distributions align with trends observed in recent years.
For the tax year 2021-2022, an analysis of R&D tax credit claims by industry sector provides intriguing insights. However, it's essential to understand that the categorisation of industry sectors might not consistently represent the actual sectors of companies' R&D endeavors.
A notable concentration of claims emerges in sectors such as Information & Communication and Manufacturing, each accounting for 23% of the claims. They are closely followed by the Professional, Scientific & Technical sector, which constitutes 16% of the claims.
In terms of the total amounts claimed, the distribution is as follows: Information & Communication and Manufacturing both account for 23%, whereas the Professional, Scientific & Technical sector represents 21%. These industry distributions have remained consistent with patterns observed in past years.
when we analyse the distribution of R&D tax credit claims by cost band, an intriguing pattern emerges.
A significant majority of the claims, 69%, fall within the lower cost bands, specifically those up to £50k. This is in line with the extensive volume of claims that are part of the SME scheme.
On the other hand, when we shift our focus to the actual amount claimed, there's a pronounced concentration in the highest bracket. A significant 27% of the total claim value is from the 'Over £2m' band, which is indicative of R&D claims from the industry's largest entities.
In the tax year 2020-2021, the landscape of first-time applicants for the R&D tax relief schemes displayed distinct patterns. The overall count of first-timers dipped by 1% compared to the prior year, marking the second year in a row of such a downturn.
Interestingly, before this period, there had been a consistent annual growth in first-time applicants. Diving deeper, the SME scheme was the primary contributor to this decline, with a 3% drop in fresh applicants.
In contrast, the RDEC scheme has been on an upward trajectory, boasting a significant 14% spike in new applicants for 2020-2021. This surge in the RDEC scheme's new entrants has become a recurring theme in recent years, juxtaposed against the SME scheme's back-to-back yearly decreases.
In the recent annual report for the 2022-2023 tax year, HMRC addressed an updated estimate concerning errors and fraud in the R&D schemes for claims made in 2020-2021. Details are included in the paper on the department’s approach to the R&D reliefs.
Moreover, for contextual understanding, HMRC explored the potential error and fraud scenarios for the 2022-2023 expenditure in the same report. Details are set out on page 258 of the HMRC annual report and accounts 2022 to 2023.
It's noteworthy that the data in this publication hasn't factored in any evaluation of error or fraud prevalence in these schemes.
It’s great to see that after more than 20 years in existence huge numbers of UK companies are benefitting from the R&D Tax Credits scheme. However, even amongst the top claiming sectors, there are businesses still missing out on improving their R&D operations by claiming R&D tax credits.
This can be for a wide variety of reasons, but one thing is for sure - it’s a massive missed opportunity for that business as well as the UK economy.
This is a real shame as average claims can be very worthwhile to small innovative businesses. Furthermore, the resulting cash is almost always invested back into R&D by most companies.
The R&D tax credit landscape in the UK continues to grow, signaling a promising environment for innovation and progress. As businesses recover from the disruptions of the pandemic, it's clear that R&D remains a significant area of investment. Whether you're an SME or a larger corporation, understanding these trends can offer valuable insights into strategic R&D investments for the coming years.
If you have any questions or need assistance with your R&D tax claims, feel free to reach out to Call us on 0207 118 6045 or send us a message and we'll be pleased to call you back.
We're here to help guide you through the complexities and ensure you make the most of your R&D investments.