On 30 September 2021 HMRC published the statistics for claims for research and development (R&D) tax relief in the UK.

The statistics on tax relief schemes allow the government to monitor the level of use of the incentive schemes and make an assessment of the effectiveness of the tax relief in achieving the targeted objectives. The statistics are therefore important in establishing any need for changes to improve the alignment of the schemes with the intended outcomes.

The R&D tax relief aims to encourage more expenditure on R&D in the UK leading to greater investment in innovation. R&D tax relief is given either by reducing a company’s liability to corporation tax or by making a tax refund. The available relief is given under the small or medium-sized enterprise (SME) Scheme; the large company scheme; or as research and development expenditure credits (RDEC).

SMEs are given a higher rate of relief than larger companies and they may claim a cash payment if they do not have a tax liability in a period against which they can offset relief.

Number of claims

In the year to 31 March 2020 an estimated total of 85,900 R&D tax credit claims were made, representing an increase of 16% on the previous year. Most of the increase in numbers of claims is explained by a rise of 16% in the number of R&D claims made by SMEs, which reached 76,225 in the year. The other 9,675 claims were under the research and development expenditure credit (RDEC) scheme.

Of the SME scheme claims, 38,050 claims were for a deduction from CT liability and 38,175 claims included a payable tax credit. Of the claims made under the RDEC scheme, 4,370 were from large companies and 5,305 of the claims were from SMEs claiming under the RDEC scheme as subcontractors.

Amounts claimed

It is estimated that in the year to 31 March 2020 GBP 7.4 billion in R&D tax relief was claimed, representing an increase of 19% on the previous year. The claims were based on GBP 47.5 billion of R&D expenditure, this amount being 15% higher than in the previous year.

Around 20% of total claims and 31% of the total amount claimed related to companies with registered offices in London, and 15% of total claims and 18% of the total amount claimed related to companies with registered offices in the south-east region. This does not necessarily mean however that all the R&D activity was performed in those locations.

Most of the R&D tax relief claims were made by companies in the information and communication, manufacturing, and professional, scientific and technical sectors. In the year to 31 March 2020, around 64% of claims and 69% of the total amount claimed were from companies in these sectors.

Claims from SMEs represented 16% growth within the SME scheme and 12% growth within the RDEC scheme. This is likely to be a consequence of the increased visibility of the schemes. There have recently been high volumes of claims from first time applicants in the SME scheme.