R&D Tax Credits are a crucial part of business development, incentivising growth and innovation across the UK.
By claiming back research and development-related costs through this Tax Relief scheme, businesses are able to reinvest part of their existing spending into pioneering research.
The HMRC’s most recent R&D statistics offer valuable insight into what’s been going on in with R&D Tax Credits in the 2020-21 tax year (as well as revised stats for 2018-19 and 2019-20). Below we give a detailed summary of the key takeaways from HMRC’s report.
1. Amount of Tax Relief claimed
This is big news: the estimated amount of R&D relief claimed back this year has decreased from the previous year for the first time ever. The total amount claimed through R&D Tax schemes for the 2020-21 tax year was £6.6 billion – a 4% decrease from the previous year.
Of that amount, £4.2 billion was claimed through the SME scheme, and £2.4 billion through the RDEC scheme. This correlates with £38.1 billion of R&D expenditure, which is an 11% decrease on the previous year.
If you’re wondering why there’s been a decrease, the government have attributed this drop to the Covid-19 pandemic, which prevented businesses from pursuing R&D to the same extent that they usually would.
2. Number of R&D Tax Credit claims
There was an estimated 89,300 R&D claims made during the 2020-21 tax year. This is a 7% increase on the previous year, and suggests that despite the drop in total R&D claimed, technical innovation isn’t slowing down anytime soon!
Of the 89,300 total claims, 78,825 of these claims came through the SME scheme, and 10,475 through RDEC. The RDEC figures are particularly interesting:
Only 3,990 of RDEC claims came from large businesses, with the remaining 6,485 coming from SMEs operating under the RDEC scheme. Considering the RDEC scheme is intended primarily for big businesses, the fact that SMEs accounted for 2/3 of total RDEC claims may impact how the schemes operate in the future.
The total number of claims from small or medium-sized enterprises has significantly grown during the 2020-21 year. It represents a 7% increase in the SME scheme claims, and a whopping 20% increase in RDEC claims. This increase makes up for the 9% reduction in claims from large businesses.
So why have RDEC claims from SMEs risen so much? It could be because more have made successful grant applications, or perhaps that they are undertaking R&D as sub-contractors. Either way, it will be interesting to see if this trend continues over the next few years.
3. Regional analysis
As expected, London still dominates the R&D Tax Credit world. The city is a hub for innovation and business, so it’s really no surprise that businesses in London make up 21% of total claims, and 31% of the total amount claimed.
Even outside of the capital, London’s influence remains clear. Areas close to London, such as the South East and East of England, have far greater levels of R&D investment than elsewhere - making up 15% and 12% of claims respectively.
The rest of the UK experienced a more equal level of investment, with the devolved regions and the North East being noticeably low in terms of both number of claims and amount of R&D Tax Credits claimed. The North East did experience a 12% increase, but the number of claims there still sits at less than 3,000, which is still significantly less than the dominant regions.
4. Industry sector analysis
Once again, the Information and Communication (22%), Manufacturing (21%), and Professional, Scientific and Technical (19%) sectors dominate the R&D sphere – amounting to 70% of the total R&D credit claimed this tax year! Within these sectors, there is a clear need for research and development, and it’s great to see that they are reaping the benefits of the government incentive.
5. First-time R&D Applications
Though the first-time R&D applicant data for the tax year 2020-21 hasn’t been included, the 2019-20 tax year saw a decrease in first-time applicants – the last time this happened was the 2009-10 tax year.
The number of first-time RDEC applicants increased by 19%, but first-time SME scheme applicants decreased by 7%, leading to a 4% decrease in overall first-time applications. Despite this, the SME scheme still completely dominates the RDEC scheme in terms of both first-time and returning applications.
6. Collaboration with ONS
It’s widely known that the HMRC and Office of National Statistics (ONS) publish inconsistent R&D data. Each year, the HMRC publishes their R&D statistics, and the ONS publishes the results of their Business Expenditure on Research Development (BERD) survey, but there are significant differences between them.
There are a number of reasons for this, such as varying data collection methods, data coverage, and definitional differences. It makes them difficult to compare and raises questions about the reliability of their data.
This year, the government has decided to tackle these disparities by publishing a joint HMRC-ONS article. Hopefully, this will create more coherent results and better inform R&D policy in the future.
Our thoughts
These statistics paint an interesting picture of the future of R&D Tax Relief. The increasing number of claims, along with the increase in SMEs taking advantage of the RDEC scheme, is hugely promising.
In light of the big changes announced in Chancellor Jeremy Hunt’s 2022 Autumn Budget, we look forward to seeing how these statistics change in the coming years.
If you would like an experienced R&D Tax advisor to help you complete your Tax Credit claim, get in touch with Claim Capital, who will complete your claim in 3-5 days at an affordable fixed-fee.