What do the latest figures tell us about the current R&D landscape?

Each year, HMRC publish a snapshot of R&D claims submitted in the previous financial year, providing a valuable insight into the current R&D landscape. In this year’s statistics (financial year 2022-2023), it is evident that HMRC’s efforts to minimise non-compliance within R&D claims has had an impact on the number of claims being made.

Compared with the prior year (financial year 2021-2022), the total number of R&D claims submitted to HMRC fell by 21%, highlighting the effectiveness of HMRC’s compliance measures such as the introduction of the additional information form (AIF). Digging into the detail, this reduction was most noticeable in SME claims where the total number fell by 23%, compared with only a 9% reduction for claims made under the R&D expenditure credit (RDEC) scheme.

In addition, the statistics highlighted a significant shift in the average claim size, with the average value increasing by 28%. This increase has largely been attributed to a significant increase in the proportion of claims with values in excess of £250,000.

From both of these metrics, it is evident that the impact from the measures implemented by HMRC to increase compliance have been felt most by SMEs, particularly those previously submitting claims with values less than £250,000.

Alongside the thousands of compliance checks which have been opened into R&D claim submissions through HMRC’s volume compliance activity over the past couple of years, it is reasonable to speculate that an element of this movement relates to HMRC successfully deterring spurious R&D claim submissions, but that an element also relates to R&D claimants (mainly SMEs) which have been deterred from making claims by the new compliance measures.

Whilst the compliance measures have the ultimate aim of minimising error and fraud in R&D claims, HMRC’s annual R&D statistics are a commonly referenced barometer for the state of R&D activity in the UK, so such declining trends are surely set to catch the attention of key R&D decision makers.

Ongoing compliance activity

HMRC’s efforts to tackle error and fraud continue through ongoing efforts to open compliance checks into around one in five R&D submissions. Ensuring the robustness of every R&D claim is therefore of paramount importance, as to minimise risks, particularly regarding potential penalties which can be applied by HMRC in relation to erroneous claims.

Through the introduction of the additional information form and new pre-notification requirements, R&D claimants need to proactively think about their R&D claim submissions, as to ensure claims are robust and do not fall foul of reporting and notification requirements.

Pre-notification requirements

For accounting periods beginning on or after 1 April 2023, pre-notification rules need to be considered, as to establish whether a claim notification form needs to be submitted. Read our blog on the new R&D pre-notification requirements or see our how we can advise you with R&D tax credits.

These rules can present additional complexity to claimant companies. As such, companies need to carefully consider these rules to avoid missing out on the opportunity to make a claim.