HMRC has published the latest R&D Tax Credits statistics, providing valuable insights into the companies across the UK benefitting from this crucial tax incentive. The report covers the 2022 to 2023 tax year and highlights trends in the number of R&D Tax Credit claims, the total amount of relief provided, and how these claims are distributed across various sectors and regions.
The R&D Tax Credits scheme has been instrumental in promoting innovation by reducing the financial burden on companies investing in research and development. This blog will break down the key R&D Tax Credit statistics from the 2023 report, explain how the R&D Tax Credit scheme works, and analyse the broader implications for businesses in the UK.
What is the R&D Tax Credit Scheme?
The R&D Tax Credit scheme was introduced to encourage UK businesses to invest in innovation. This scheme provides tax relief to companies engaged in qualifying R&D activities, helping to reduce their Corporation Tax liabilities. There are two key schemes under which companies can claim R&D Tax Credits:
The Small or Medium-sized Enterprises (SME) Scheme
This scheme applies to businesses with fewer than 500 employees and either an annual turnover not exceeding £100 million or a balance sheet not exceeding £86 million. It is the most popular avenue for SMEs seeking R&D Tax Credit relief.
The Research and Development Expenditure Credit (RDEC) Scheme
While this scheme is aimed primarily at large companies, SMEs that have received grant funding or are subcontracted to carry out R&D work for larger firms can also claim under the RDEC scheme. This allows businesses of all sizes to take advantage of R&D Tax Credits. You can read more about tax relief for larger businesses on our Corporate Tax Services page.
Key Findings from the 2023 R&D Tax Credit Statistics
The 2023 R&D Tax Credit statistics reveal continued growth in both the number of claims and the amount of relief provided through the scheme. The key highlights include:
Increase in R&D Tax Credit Claims
The total number of R&D Tax Credit claims for the 2022 to 2023 tax year was 90,315, representing a 5% increase from the previous year. This increase was largely driven by the SME scheme, which accounted for 79,205 claims. Of these, 37,455 claims were made for a Corporation Tax deduction, while 41,745 claims involved a payable tax credit element.
The RDEC scheme, available to larger companies and certain SMEs, saw 11,115 claims, demonstrating that both small and large businesses are continuing to take advantage of the R&D Tax Credit incentive.
Total Value of Claims
The total value of R&D Tax Credits claimed in the 2022 to 2023 tax year reached £7.6 billion, an 11% increase from the previous year’s total of £6.8 billion. Of this, £4.8 billion was claimed under the SME scheme, while the RDEC scheme accounted for £2.8 billion.
Although SMEs represent the majority of R&D Tax Credit claims, the average claim size under the RDEC scheme is significantly larger, reflecting the substantial R&D investments typically made by large companies.
Sector Distribution Claims
Certain industries dominate in terms of R&D Tax Credit claims. The Information & Communication, Manufacturing, and Professional, Scientific & Technical sectors continue to lead, together accounting for 62% of total claims and 67% of the total amount claimed.
- The Information & Communication sector made 23% of all R&D Tax Credit claims.
- Manufacturing also represented 23% of claims.
- The Professional, Scientific & Technical sector contributed 16% of claims.
These sectors consistently rank among the largest claimants of R&D Tax Credits, underscoring the importance of tax relief in fostering innovation within technology, manufacturing, and scientific fields.
Regional Distribution Claims
The regional distribution of R&D Tax Credit claims shows a clear concentration in London and the South East. London alone accounted for 22% of total claims and 32% of the total amount claimed. The South East contributed 15% of claims and 18% of the total amount claimed.
Other regions, such as the East of England and the North West, also feature prominently. The East of England accounted for 11% of the total amount claimed, while the North West had the third-largest number of R&D Tax Credit claims.
However, it’s worth noting that the location of a company’s registered office may not necessarily reflect where the R&D activity is carried out. Many businesses with registered offices in London may conduct their R&D operations elsewhere in the UK, due to factors like cost savings and access to specialised talent in certain regions.
First-Time Applicants for R&D Tax Credits
The report also reveals that 16,870 companies submitted their first-ever R&D Tax Credit claim in the 2022 to 2023 tax year. This increase in first-time applicants demonstrates growing awareness of the scheme, particularly among SMEs.
The ability to claim R&D Tax Credits for the first time provides crucial support for start-ups and growing businesses, allowing them to reinvest in further R&D activities and continue to innovate.
If you’re facing an HMRC R&D tax credit investigation, it’s crucial to seek expert legal advice to protect your business and navigate the complexities of the investigation process. At Francis Wilks & Jones, our experienced tax dispute lawyers can provide the support and guidance you need.
Don’t leave it to chance – let us help you resolve the issue swiftly and effectively. Read our R&D Tax Credit Investigation Guide to learn more and get in touch with our team today.
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