Why do we need a HMRC R&D Tax Credit Statistics Report?
The latest Research and Development (R&D) Tax Credits Statistics Report has been released by HM Revenue and Customs (HMRC), proving information for accounting periods ending during the 2021-2022 tax year. The report, published annually, aims to share insight into the number of UK companies benefitting from the relief and how much they are claiming, allowing us to make comparisons and assess any trends.
LimestoneGrey has analysed the data to uncover the key information, evaluating to what extent UK companies are utilising this valuable government incentive.
R&D Tax Credit Report: Key Statistics
Total number of claims
79,205 SME claims
Total amount of R&D support received
£4.8 Billion SME, £2.8 Billion RDEC
Total R&D expenditure
R&D Tax Credit Report: Key Trends
Rise in the number of claims submitted
The provisional number of R&D tax credit claims rose to 90,315, a rise of 5% from the year before. There has been a small increase in both the number of SME’s and Large companies making claims, but the 5% rise can largely be accredited to the number of claims being made by small or medium-sized enterprises under the Research and Development Expenditure Credit (RDEC) scheme.
Increase in R&D support claimed
The total support claimed through both R&D schemes for the period is estimated to be £7.6 billion, a rise from the previous year of 11%. This is a welcomed increase when compared to last year’s 4% decrease. £4.8 billion of this was claimed through the SME scheme, leaving £2.8 billion through the RDEC scheme. Both schemes have seen a healthy increase in support, with SME rising by 14% and RDEC support claimed increasing by 7%.
The 2020-2021 tax year saw zero growth in R&D relief claimed for the first time in the scheme’s history, which is suspected to be largely attributed to the nationwide lockdown; preventing companies from actively pursuing R&D objectives. The increase in this year’s report will no doubt be as a result of businesses returning closer to normal, with some company’s re-igniting their R&D activities.
Increase in R&D expenditure
The total amount of qualifying R&D expenditure used to claim R&D tax relief for the period is estimated to be £44.1 billion, being an 8% increase on the previous period. Similar to the increase in support claimed detailed previously, this increase could largely be in part to the UK’s recovery form the COVID pandemic. We suspect that furlough would have played a significant part in the reduction of spend in a previous period and the re-introduction of staff will likely have seen a greater push, and spend, on qualifying activities.
The majority of the expenditure (60%) was by UK companies claiming under the RDEC scheme.
First time claimants
For the second consecutive year, we saw a decrease in the overall number of first-time applications. This however is only specific to applicants within the SME scheme, as first time applicants to the RDEC scheme increased.
Concentration of claims in particular locations
As in previous years, regional analysis highlights a concentration of claims by companies with registered offices in London. These companies occupy 22% of total claims and 32% of total amount claimed. Behind London was the South East, with companies in this region accounting for 15% of total claims and 18% of total amount claimed. As always, we do have to keep in mind that the data collection is based on the location of the company’s registered office address. The R&D activities could be carried out in other areas of the UK.
Northern Ireland, Wales and the North East of England accounted for the lowest total claims and total spend.
Selection of sectors benefiting from the relief
There is no buck in the trend here as we see claims in the Information and Communication, Manufacturing and Professional, Scientific & Technical sectors occupying the majority of both claims made and total spend. Between them, they account for 62% of the total number of claims made and an impressive 67% of the total R&D spend.
Figures continue to be tainted by impact of COVID-19
This latest report continues to house figures that are taken from a period where COVID-19 continued to be an issue for some businesses. The increases in this report will surely be largely attributed to the fact that many R&D projects were suspended in the previous period so does not give a true reflection.
Matthew Jones, managing director, LimestoneGrey, commented:
It is promising to see increases in the number of claims submitted, along with the expenditure invested and the amount of support received as companies will no doubt still be suffering the effects of both national and firebreak lockdowns. The lack of context behind the numbers means that we need to develop our own conclusions so it is impossible to assign contributing factors with any sense of certainty.
The magnitude of R&D tax credit reform will undoubtedly impact the statistics in this report going forward. What is worrying is the already downward trend in first time applicants as the introduction of the Additional Information Form (AIF), HMRCs new draconian interpretation of subcontracted R&D and the rate reduction will impact heavily on start ups going forward.
Further information on future R&D tax credit reform will hopefully be provided later this year.