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HMRC’s 2023-24 R&D tax credit stats reveal a 26% drop in claims, with SMEs hit hardest as compliance rises and larger RDEC claims dominate.
HMRC has released its annual R&D tax credit statistics, and the numbers don’t lie: fewer companies are claiming.
For the 2023-2024 financial year, both the number of claims and the total amount claimed have dropped. These figures are currently provisional, as companies can still submit claims for this period, but show that fewer SMEs are claiming year-on-year.
This year marks a transition point. It's the final year that companies could claim under the SME and RDEC schemes before the Merged Scheme came into effect in April 2024. It's also the first full year where all claims required an Additional Information Form (AIF), one of HMRC's key compliance measures.
The total value of R&D tax relief claimed was £7.6 billion, down 2% from the previous year. At first glance, this seems like a modest drop. But there is another story: the number of claims fell by 26%, from around 63,500 to 46,950.
How can the total value stay relatively stable while claim numbers plummet? The answer lies in the rate changes.
In 2022’s Autumn Statement, the R&D tax relief scheme was reformed to reduce the additional deduction that SMEs receive. This applied to expenditure incurred from 1 April 2023 (i.e., all expenditure under this period).
As the SME scheme became less generous, the RDEC scheme went the opposite way. Large companies, who typically claim larger amounts, saw their headline rates increase from 13% to 20%. This offset the loss of thousands of pounds of relief in smaller claims and kept total amounts claimed steady.
Furthermore, with HMRC’s efforts to ward off ineligible claims, there has been an incentive-wide drop in the number of claims by over a quarter. The number of SME claims dropped 31%, while RDEC claims fell by a more modest 5%.
The landscape of the two schemes has thus shifted to favour the RDEC scheme. SME scheme claims fell 29% to a value of £3.15 billion, while RDEC claims jumped up 36% to £4.41 billion. This is the first time in seven years that RDEC has overtaken SME as the larger scheme by value.
The most striking trend is in the smallest claims. Looking at claims worth up to £15,000 of tax relief, the numbers show that the R&D tax credit schemes is becoming inhospitable to the more modest claimant:
That's a drop of more than two-thirds in just three years.
Meanwhile, larger claims (those above £250,000) have held up better, which explains why the total value hasn't fallen as sharply as the number of claims.
The average claim value has actually increased by 33% compared to the previous year. This may seem like good news, but it’s just a nice headline to describe the loss of smaller claims.
The decrease in SME rates (from a 130% enhancement to 86%, and credit rates from 14.5% to 10%) has obviously reduced the value in claims. Perhaps, it has also deterred some claimants, as their small claim becomes smaller and the requirements to make their claim more stringent.
Furthermore, the mandatory AIF, while only affecting about half of 2022-2023 claimants, now applies to all claims in 2023-2024. This additional administrative requirement may have dissuaded some companies who weren’t confident in their claim or haven’t got the resources to put towards its preparation. The effort-to-reward ratio is tipping in the wrong direction.
HMRC's broader compliance push appears to be having an impact. Of course, many ineligible companies will have been blocked or discouraged from claiming with the AIF requirement (among other compliance measures), which is a good thing. Whether by error or fraud, the government has made it clear that claims that do not qualify will not be accepted; depending on how egregious, the claimant may be subject to penalties or even criminal proceedings.
However, there is fear in the industry that genuine claimants have been put off from making qualifying claims due to the decline in value of the claim or fear of the claim being rejected.
It’s impossible to know with any certainty what percentage of claimants who did not return to make a claim were simply ineligible or were wrongfully deterred.
The geographic and sector distributions remain largely consistent with previous years. London and the South East continue to dominate, accounting for 51% of the total amount claimed.
Information & Communication, Manufacturing and Professional, Scientific & Technical sectors remain the top three, together representing 72% of all claims and 71% of the total amount claimed.
Sectors where R&D claims would be unexpected have seen drops in claims year-on-year. Accommodation & Food, Wholesale & Retail Trade, Repairs, Real Estate and Education have all seen decreases of over 70% since 2021-2022. These are sectors where HMRC has historically identified higher levels of error and fraud, so the decline likely reflects deterrence of ineligible claims.
The decline in new claimants to the scheme is worth noting. First-time applications fell 41% in 2022-2023 compared to the previous year, marking the fourth consecutive year of decline. SME first-time applications dropped 45%, while RDEC fell 21%.
Perhaps the scheme is reaching maturity, with fewer companies left to discover it. Alternatively, it might indicate that companies are being deterred from claiming, whether by compliance measures, rate changes, or concerns about scrutiny. Data for 2023-2024 first-time applicants isn't yet complete, so we'll need to wait for next year's publication to see if this trend continues.
This trend is one to watch, as HMRC has introduced an additional measure for first-time claimants: the Advance Notification Form. Those looking to make a claim must let HMRC know their plan within 6 months of their accounting period ending. This deadline has the potential to drastically cut the number of new claimants in the future.
The rate changes have rebalanced support towards larger companies and RDEC claimants, while compliance measures appear to be filtering out questionable claims. For legitimate claimants, particularly SMEs, the scheme is still valuable, but you need to ensure your claim is robust and well-documented.
The introduction of the merged RDEC scheme and Enhanced R&D Intensive Support (ERIS) in April 2024 represents another significant change. Eligibility criteria remain the same, with some slight changes to subcontracting rules, but we won't see the impact of these new rates and claim structures until next year's statistics.
For now, these numbers serve as a reminder that the R&D tax credit environment has fundamentally changed. Companies that previously claimed small amounts need to carefully assess whether the benefit still outweighs the administrative burden, while those making larger claims should focus on ensuring their R&D activities are clearly defined and properly documented.
If you’re looking to get some clarity around your own R&D tax credit claim, get in touch with the Myriad team. We’re here to help you make sense of the changing landscape, from AIFs and ANFs to claiming through the Merged Scheme.
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HMRC’s 2023-24 R&D tax credit stats reveal a 26% drop in claims, with SMEs hit hardest as compliance rises and larger RDEC claims dominate.
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