The latest Research and Development (R&D) Tax Credits Statistics from HMRC show that for the tax year 2023 to 2024, the provisional estimated amount of total R&D tax relief support was £7.6b, a decrease of 2% from the previous year.

In addition, the provisional estimated number of R&D tax credit claims for the tax year 2023 to 2024 was 46,950, 26% lower than the previous year.

Lizzie Gosling, Innovation and Capital Tax Reliefs Director at RSM UK, said: “This year’s findings unmistakably reflect the continued impact of recent reforms to the R&D tax regime. There are clear consequences for both the size and distribution of claims across the business spectrum, yet the shifts show little overall impact on the Treasury. Despite the government’s aim to support businesses across the UK, access to funding through R&D relief has pivoted away from smaller, start-up businesses and swung solidly toward larger corporates. For the tax year 2023 to 2024, the total number of R&D tax credit claims plummeted by 26%, with the prior year also seeing a 23% year-on-year decline.

“Notwithstanding the sharp downturn in R&D tax credit claims in recent years, the underlying value of support delivered by the government has remained stable. While fewer overall claims are made, those that have are larger businesses, claiming larger amounts and accessing a higher value of credit. The generous 50% increase in net Research and Development Expenditure Credit (RDEC) benefit from 1 April 2023 may also well be a driver for this, with net credit increasing from 10.53% up to a potential 16.2%. This available credit has put R&D claims back on the radar of larger corporates, with over 30% of this year’s new claimants now large companies.

“This shift is not accidental. HMRC’s reforms have introduced stricter compliance measures, including mandatory reporting requirements (the Additional Information Form) and increased scrutiny of claims.
While HMRC’s efforts to reduce fraud and error are commendable, there is growing concern that the added compliance measures may be too burdensome, discouraging genuine, innovative small and medium-sized enterprises (SMEs) from accessing vital funding.

“The new compliance requirements have significantly increased the burden on claimants, particularly for companies with multiple, smaller projects. The need to provide high-quality narratives covering 50% of R&D spend, coupled with the reduction in SME rates, has made smaller claims less commercially viable, with the number of first-time claimants at the lowest level in over a decade. In comparison, larger, more sophisticated businesses are benefitting from a long-sought-after boost in funding, aligning the UK’s R&D regime more closely with other global jurisdictions. Alongside other incentives such as the Patent Box, the increased R&D credit support for large corporates is making the UK a more attractive global hub to develop technology and retain intellectual property.”

She added: “The statistics reflect an ongoing sea change in the UK’s R&D tax landscape, with reforms successful in curbing speculative and low-value claims. While this has come at the cost of making the regime less accessible to SMEs, larger, more sophisticated corporates with substantial UK-employee headcounts, are reaping the benefits. Policymakers must now consider whether the balance is right, if further changes are needed to ensure that the UK’s innovation ecosystem remains vibrant and inclusive, or if maintaining stability will instil businesses with confidence and boost investments.”

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