HMRC R&D tax stats show 26% drop in claims

HMRC has just published its R&D tax relief statistics, showing a sharp fall in the number of businesses claiming support. Claims are down 26% overall, with SMEs hit hardest (down 31%).

Sara Brigden, Managing Director at ForrestBrown, the UK’s largest specialist R&D tax consultancy. Sara highlights the real-world impact of the reforms, including a drastic fall in first-time SME claimants, and raises the question of whether smaller businesses will now be discouraged from investing in innovation.

Brigden said, “Research and development tax credit statistics released today by HMRC show a significant reduction in the number of claims, down 26%, with a disproportionate 31% drop in claims from SMEs. Despite this, the overall value of support claimed by businesses has fallen by only 2% – the first decline since the COVID period.

“Today’s data highlights the real impact of recent R&D tax relief reforms, with total claims now at their lowest since 2015-16. First-time claims from SMEs have seen a drastic 45% fall, driven by a combination of reduced relief rates and increased administrative effort, which together act as a de facto de minimis.

“While SMEs face increased friction with the recent reforms, larger businesses have benefitted from higher rates of return and have taken an increased share of the relief (47%) – although the number of RDEC claims has also dropped, albeit by a much smaller amount. The increased RDEC rate makes large, more risky projects more viable and gives greater planning certainty.

“The sharp drop in SME claimants is no surprise. Many small businesses now face a more complex and time-consuming claims process for reduced benefit – and for some, the return simply isn’t worth the effort.

“Today’s data raises an important question: will these changes discourage small businesses from investing in R&D, or push them to seek alternative sources of non-dilutive funding? While recent reforms have had a welcome impact on reducing error and fraud, we would caution against any further changes that risk undermining R&D investment. Doing so could detract from the core – and positive – purpose of the incentive: to drive private sector innovation.”