HMRC R&D Tax Report 2023

2023 R&D Tax Report – The Key Takeaways

The biggest revelations from this year’s R&D Tax Relief report. 

HMRC has just released its latest annual report on the R&D Tax Relief scheme, reviewing claims submitted during the 2021-2022 tax year. 

Like its predecessors, this edition is jam-packed with interesting insights into the uptake of this important scheme and the state of UK innovation. 

Let’s look at the two biggest takeaways from this year’s data. 

R&D Tax payouts rose 11% as businesses bounce back from Covid

In total, the R&D Tax Relief scheme paid out £7.6 billion, an 11% increase on the previous year. This corresponds to £44 billion in private sector investment, 8% more than in 2020-2021. These figures point to a healthy post-pandemic recovery, with businesses once again willing and able to prioritise innovation. 

The rise in R&D Tax Relief was largely driven by a 14% increase in payments made by SME R&D Tax Relief. This shows that small and medium enterprises, which were hit especially hard by the pandemic – one McKinsey survey found that 80% of SMEs experienced declining revenues in 2020 – were able to bounce back strongly.

Total relief paid out by the Research and Development Expenditure Credit (RDEC) rose 7% to £2.8 billion, with 86% of funding going to large businesses. The remainder went to SMEs that are eligible for R&D Tax Relief but ineligible for the SME R&D Tax Relief scheme. 

You can read more about why some SMEs have to claim via the less-generous RDEC scheme in this article.

First-time SME claimants fall for second consecutive year

The number of companies that claimed SME R&D Tax Relief for the first time fell by 3% in the 2020-2021 financial year. This is the second year in a row that the number of first-time SME R&D Tax claimants has fallen. 

There are several possible explanations for this decline. 

The first is that, as awareness of the R&D Tax Relief scheme has improved, the number of companies that are eligible but didn’t realise it has gotten smaller. So we are seeing fewer companies suddenly discovering their eligibility and filing their first claim. 

Another is that HMRC’s stricter policing of the scheme has successfully warded off ineligible companies from making speculative claims. This would mean they are correctly ignoring the advice and advances of unscrupulous R&D Tax advisors who happily submit ineligible claims on behalf of, oftentimes, unsuspecting clients. 

The number of these advisors has exploded in recent years, and many businesses have been sucked in by their promise of easy-come funding. 

Finally, HMRC’s approach and the government’s rhetoric around tackling non-compliance – which costs the exchequer more than £1 billion per year – may have caused legitimate claimants to second-guess their eligibility and choose not to file a claim. This would be a shame. R&D Tax Relief exists to incentivise private sector investment in innovation. It can only do so if eligible businesses feel comfortable claiming.

It’s difficult to know how many legitimate companies have been turned off applying. However, with new claim requirements now in force and HMRC continuing to ramp up enquiries, I fear the number of businesses uncertain about their eligibility will grow significantly in the months ahead. 

I would strongly advise any business that fears they might be in this position to seek expert advice from a reputable agent like GrantTree.

Questions about R&D Tax Relief?

HMRC’s latest report shows that R&D Tax Relief continues to be a vital source of funding for innovative UK businesses, large and small. 

If you have any questions about R&D Tax Relief – whether you’re eligible, how much you should be claiming, whether your submission is compliant with all the latest changes – my colleagues and I in GrantTree’s R&D Tax Relief team are here to help.

With 12 years’ experience and over £350 million secured for our clients, we are perfectly placed to help you navigate this complex but generous scheme, avoiding common pitfalls and strengthening your reputation with HMRC.

We look forward to hearing from you!