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    Tag: RDEC

    R&D tax claims drop by 26%: what does this mean for UK innovation?

    Posted on by Rebecca Campbell

    HMRC’s latest statistics reveal a 26% decline in R&D tax credit claims for the 2023–24 tax year, marking the lowest number of claims in nearly a decade. While the total value of claims remains relatively stable at £7.6 billion, the sharp drop in claim numbers – particularly among SMEs – raises important questions about the future of innovation in the UK.

    The decline in claims

    The number of R&D claims fell to 46,950, down from 65,690 in the previous year. This decline is primarily due to changes in R&D tax relief schemes, including reduced rates and increased administrative requirements, which have disproportionately impacted smaller businesses.

    SME claims dropped by 31%, while first-time claimants saw an even sharper 45% decrease. In contrast, claims under the R&D Expenditure Credit (RDEC) scheme experienced a smaller decline of around 5%. These figures suggest that while larger businesses continue to claim successfully, smaller innovators often struggle to navigate the increasingly complex process.

    Increased average claim size

    Despite the overall decrease in claims, the average value of claims has increased. Businesses that do claim are submitting larger claims – often those with more resources and experience in handling complex R&D tax processes.

    At PM+M, we see firsthand how SMEs can struggle without expert support. Our role is to simplify the process, ensure compliance, and maximise the relief available – helping businesses continue innovating despite the challenges.

    SMEs: the most affected

    Reduced relief rates and heightened administrative burdens have made the R&D tax credit less accessible for smaller businesses. With the right guidance, SMEs can still access significant relief and continue driving growth.

    Sectoral trends

    Claims remain concentrated in specific sectors, with Information & Communication, Manufacturing, and Professional, Scientific & Technical sectors accounting for 71% of the total value of R&D tax relief. While these industries are crucial to UK innovation, there is room to encourage a wider range of sectors to engage in R&D.

    Looking ahead

    The decline in R&D tax claims presents both a challenge and an opportunity. While government reforms aim to reduce fraud and error, they could potentially risk discouraging genuine innovation if smaller businesses are left behind.

    At PM+M, we help companies navigate these changes, ensuring that all eligible businesses – regardless of size or sector – can take full advantage of R&D tax credits. If your business is unsure whether it qualifies for R&D tax relief or needs assistance claiming, we can help. Our team of experts will guide you through the process, ensuring you maximise your claim and focus on what matters most – innovating and growing your business.

    If you’d like to discuss how your business could make the most of R&D tax relief, get in touch with our team at enquiries@pmm.co.uk.

     

    R&D changes announced in the Autumn Statement

    Posted on by Rebecca Campbell

    SME Scheme

    From 1 April 2023, R&D SME tax relief will be cut from an additional deduction of 130% of qualifying costs to 86%. In addition, the repayable tax credit which is available for loss making companies will be cut from 14.5% to 10%.

    The actual tax benefit lost will vary according to the profits or losses made in the company and its corresponding tax rate.  Worst hit will be loss making companies that surrender their R&D loss for a repayable tax credit.  For expenditure incurred after 1 April 2023, a loss-making company spending £100,000 on qualifying R&D will only be able to claim a repayable tax credit of £18,600, whereas in the current year they could claim up to £33,350.  Companies that have accounting periods straddling 31 March 2023 will need to apportion their R&D expenditure between that incurred pre and post 1 April.  They will effectively have 2 R&D claims in the one accounting period.

    RDEC scheme

    From 1 April 2023, the research and development expenditure credit, primarily aimed at large companies but also at companies who receive funding for their R&D work, will be increased from 13% to 20%. In most cases this increases the net tax saving from 10.5% to 15% of the qualifying expenditure.

    The primary reasons for the reduction in the SME scheme and the increase in the RDEC scheme are the perceived abuse of the SME scheme and also a recent report which concluded that higher levels of private sector R&D investment are generated for every £1 of tax relief given under the RDEC scheme that the SME scheme.  Therefore, there is an expectation that these schemes will gradually be merged into one.

    Compliance changes

    Additional changes that were announced last year in respect of the compliance around both R&D schemes are also still going ahead. These changes affect accounting periods beginning after 1 April 2023 and are again designed to reduce fraudulent claims. The main compliance changes are:

    1. A report describing the R&D projects carried out and breaking down the qualifying costs must be submitted as part of a claim
    2. Claims will need to be endorsed by a named senior officer of the claimant company
    3. Any agent who has helped in preparing a claim will also need to be disclosed – i.e., PM+M.
    4. Companies planning to make a claim, who haven’t previously claimed, will have to notify HMRC of their R&D activity within 6 months of the year-end in question.  It is expected that this will be done through an on-line portal, but no further details have yet been released.

    Further changes

    The government have also legislated to ensure that most R&D is actually performed in the UK, and from April 2023 subcontracted R&D work or work done by externally provided workers will only qualify for relief if this work is carried out in the UK. There are some exceptions to this, but these are very limited.

    Finally, on a more positive note qualifying expenditure under both schemes has been extended for accounting periods beginning after 1 April 2023 to include pure maths, cloud computing and license payments for datasets.

    Summary

    Overall, we can see a tightening up of the R&D scheme as a whole and a movement towards an RDEC style scheme for all companies regardless of size.  It is important for companies to ensure that they maximise their claims as far as possible but to ensure they have robust evidence of the projects carried out and the qualifying costs incurred.  SME’s engaged in sizeable R&D projects may want to consider the timing of their spending to see how much can be incurred prior to 1 April 2023 under the current scheme.