HMRC R&D tax credits Statistics March 2024

The latest set of R&D tax credit statistics covers the period ending March 2024, so many of the changes that have been made to the scheme are yet to fully hit home, with rate changes coming into force from 1 April 2023 for the entire period: 

• SME scheme: Enhancement rate reduced from 130% to 86%; credit rate from 14.5% to 10%. 

• RDEC scheme: Credit rate increased from 13% to 20%. 

• New support for R&D intensive SMEs (≥40% R&D expenditure). 

• Corporation Tax rate increased from 19% to 25%. 

• Mandatory Additional Information Form (AIF) introduced for all claims from August 2023. 

Further changes relating to the introduction of the Merged Scheme (New RDEC), the exclusion of foreign sub-contractor costs from claims, and changes to those who contemplate the R&D, will not take effect until accounting periods beginning on or after 1 April 2024. With variable start dates due to differing company periods, this will partly hit the fiscal period ending March 2025, and won’t come into full force until the end of March 2026. 

It is certain that the Mandatory Random Enquiry Programme (MREP), on which HMRC’s R&D compliance check plan is built, is starting to take effect.  

Some significant statistics remain unchanged, with Information & Technical, Manufacturing, and Professional, Scientific & Technical staying as the highest sectors by volume and claim value. London and the Southeast remain the most active regions with 39% of claims and 51% by value.  

The biggest shift is in the number of companies claiming, dropping to the lowest number since before 2016. The majority of which is heavily skewed towards the number of SMEs claiming, with an overall drop 31%. First-time claimants dropped significantly, with 7230 SMEs and 2000 for Large Companies (LCs). This is nearly half the level of 2016/17, and likely has an impact on the HMRC MREP, and closer attention is being paid to rogue R&D agents. 

Despite the drop in the number of claimants, the support being claimed through R&D tax relief is staying static.  

The number of SMEs claiming significantly dropped but so did the benefit level change for the period from a previous 130% uplift to 86%. Meanwhile the generosity for the RDEC scheme went up from 13% to 20% RDEC rate, so that explains the increase in value for RDEC claimed by SMEs and LCs. The overall level of R&D expenditure remained static at £46.1 billion, just a 1% drop from the previous year.  

The significance here is that with a smaller number of claims in 2023/24, compared to the previous year, the level of spend stayed the same. This means in the period 2023/24 the average claim by eligible costs across all the schemes was £981k (46950 claims on £46.1b spend). This is a significant increase on the previous period 2022/23, which the average claim eligible costs were just £732k per claim (63780 claims on £46.7b spend). I am unable to explain the factors driving this element of the latest R&D tax credit statistics. While the number of claims exceeding £1 million increased by 8%, the total value of those claims rose by 21%. In contrast, all other cost bands (<£50k, £50–100k, and £100k–£1m) declined in both value and number of claims. The reason for the increase in the average value of claims over £1 million remains unclear.

Key Highlights

• Total R&D tax relief claimed amounted to £7.6 billion, representing a 2% decrease compared with the previous year.
• Total qualifying R&D expenditure fell slightly to £46.1 billion, down 1% year from the previous year, suggesting a marginal reduction in the level of R&D activity being recognised for tax purposes.
• The number of R&D tax relief claims declined significantly to 46,950, a 26% decrease from the previous period. This reduction was primarily driven by a 31% fall in claims under the SME scheme, which has seen a notable tightening of eligibility and scrutiny in recent years.
• Despite the fall in claim numbers, the average claim value increased by 33%. This rise was largely the result of a shift in the claimant profile. Fewer small claims were submitted, while larger claims (particularly those exceeding £1 million) became more prominent.

The Future? 

There continue to be several changes, both those already implemented and others still unfolding. The introduction of the Claim Notification requirement for all companies that have never made an R&D claim before will, in my view, have a significant (and somewhat unfair) impact on new claimant numbers. It’s incredibly frustrating to have to tell a company that they have genuine, valuable R&D activity, yet they cannot claim simply because they didn’t complete a form they didn’t even know existed.

Foreign subcontractors’ costs will start to drop from April 2024. Will this drive companies to using UK-based activity in the hope that R&D tax relief will offset the potentially higher cost? 

The HMRC MREP (Mandatory Random Enquiry Programme) also appears to be stabilising, with more consistency emerging in HMRC’s approach and more balanced, realistic outcomes, rather than the rigid “no R&D here” stance that was too common in the past.

The Expert Advisory Panel came into being in recent months, and is another notable development, but I expect it will take time for their influence to filter down to caseworkers and influence communication and policy. 

The introduction of the “contemplated R&D” concept adds an additional layer of complexity to the scheme. Along with the Merged Scheme (New RDEC) through which all companies (except R&D-intensive SMEs) will now claim, it represents a major structural shift. The inclusion of subcontractor costs for all companies, not just those under the SME scheme, could move eligible costs around the scheme, with large companies able to claim subcontractor costs for the first time.

The R&D tax credit statistics of future years will hopefully reveal how these combined changes reshape the balance between SME and large company claims and whether the simplification promised by the New RDEC truly delivers. The New RDEC is expected to simplify the claims process overall, bringing self-funded, grant-funded, and contracted R&D under a single, unified scheme.

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