Shining a Light on R&D: Analysing the HMRC R&D Tax Credit Statistics for 2021-2022

The most recent figures from HMRC's R&D tax credits report for the tax year 2021 to 2022 have been released.

For businesses engaged in the realm of R&D tax incentives, this fresh data offers an informative glimpse into the current trends, the variance in regional claiming patterns, and the impact of different industry sectors.

Here’s an analysis of the key takeaways:

Key Insights

Increase in Claims Volume: The provisional sum of R&D tax relief claims for 2021 to 2022 reached an impressive £7.6 billion, which is an 11% increase over the prior year, correlating with £44.1 billion of R&D expenditure—an 8% rise.

Rise in Claiming Entities: Provisionally, there were 90,315 R&D tax credit filings in this period, marking a 5% rise from the last year, with increases in submissions observed under both the SME and RDEC schemes.

Enhancement in Claim Values: There was a 6% increase in the average value of R&D claims during 2021 to 2022. Specifically, a surge of 9% under the SME scheme suggests a recovery trajectory, potentially after the pandemic-induced downturn.

Geographical Claims Distribution: The majority of claims originated from companies with headquarters in London and the South East. Whilst this doesn't necessarily reflect the exact locations of R&D activities, London accounted for 22% of all filings and 32% of the total claim value, with the South East following at 15% of filings and 18% of the claimed amounts.

Sector-specific Spotlight: The sectors leading in claims include Information & Communication, Manufacturing, and Professional, Scientific & Technical, comprising 62% of all filings and 67% of the total claimed amount for the 2021 to 2022 tax year.

A Closer Look at the Data

Claim Numbers

The 2021-2022 tax year saw an increase in R&D tax credit filings to 90,315.

Within this, SMEs made 79,205 claims, some seeking only Corporation Tax liability reduction and others involving a payable tax credit aspect.

The RDEC scheme received 11,115 claims, with large businesses representing 4,695 of these, denoting a 6% rise. The remaining claims under this scheme were from SMEs, due to their subcontractor role in R&D or receiving grants making them ineligible for the typical SME scheme.

Financial Aspects of Claims

In terms of financials, there was an 11% uplift in the total support claimed, amounting to £7.6 billion.

Dissecting this, SMEs claimed £4.8 billion and RDEC accounted for £2.8 billion. Within the RDEC figures, large businesses claimed £2.4 billion, and SMEs accounted for £415 million.

With an average claim value increase of 6%, driven primarily by the SME scheme, these figures might indicate a rebound from the pandemic’s impact.

Expenditure on R&D

The qualifying R&D expenditure reported was £44.1 billion, an 8% increase, with 60% of this expenditure claimed through the RDEC scheme.

This increase could signify a revitalisation of R&D activities following the pandemic, although these figures are preliminary and subject to future revision.

Regional Claims Distribution

The 2021-2022 statistics also offer a regional perspective based on company registration locations, with London leading in both claim numbers and value. The South East and East of England also emerged as significant contributors, with consistent trends over the years.

Industry Sectors Breakdown

An analysis by industry for 2021-2022 underscores a concentration of claims in the Information & Communication and Manufacturing sectors, followed by the Professional, Scientific & Technical sector. These distributions remain consistent with historical trends.

Observations on Cost Bands and New Claimants

Most claims, 69%, were from lower cost bands (up to £50k), in line with the volume from the SME scheme.

Conversely, the 'Over £2m' band accounted for 27% of the total claim value, reflecting substantial R&D claims by large entities.

For new claimants, there was a slight 1% decrease, with the SME scheme showing a reduction and the RDEC scheme experiencing a notable 14% increase in first-time applicants.

Error and Fraud Considerations

HMRC’s recent annual report on R&D addressed error and fraud estimates for 2020-2021, with additional context on the potential error and fraud in 2022-2023 outlined in their report.

Missed Opportunities and Looking Forward

For UK businesses not yet leveraging R&D tax credits, these figures underscore the potential to bolster innovation funding.

Looking ahead, the evolution of R&D tax incentives, especially considering changes such as PAYE/NIC caps and the expansion of qualifying costs to data and cloud computing, may reshape the landscape in the upcoming years.

Get in touch

If you would like to discuss any aspect of R&D Tax Credits or the Tax Cloud portal, feel free to contact our friendly expert team on 020 7360 4437 or send us a message.

References:

Research and Development Tax Credits Statistics: September 2023

https://www.gov.uk/government/statistics/corporate-tax-research-and-development-tax-credit/research-and-development-tax-credits-statistics-september-2023

Author Barrie Dowsett, ACMA, GCMA CEO, Tax Cloud