The amount of Research & Development (R&D) tax relief support claimed by UK businesses has fallen, according to figures from HMRC.
But although the amount of funding has dropped, the number of firms making claims has risen. For the 2020/21 tax year, £6.6 billion was claimed by UK firms, which is a four per cent decrease from the previous year.
First decrease in 20 years
The statistics from HMRC show this is the first time there has been a decrease since the scheme was introduced 20 years ago. Growth had risen by an average of 17 per cent in the tax years between 2014/15 and 2019/20.
However, figures report an estimated total of 89,300 claims made during the 2020/21 tax year, a seven per cent rise from the previous year.
Overall was a 10 per cent decrease in the average value of claims during the 2020/21 tax year.
R&D Tax Credits allow up to 33 per cent of eligible R&D costs to be claimed back from HMRC.
Such costs include staff wages, employers’ pension and NI contributions, materials, gas and electricity costs.
How can it work for SMEs?
You are classed as a small or medium-sized enterprise (SME) for the purposes of R&D tax incentives if you employ less than 500 employees and have either an annual turnover under €100 million or a balance sheet under €86 million.
HMRC says R&D tax relief allows companies to:
- Deduct an extra 130 per cent of their qualifying costs from their yearly profit, as well as the normal 100 per cent deduction, to make a total 230 per cent deduction
- Claim a tax credit if the company is loss making, worth up to 14.5 per cent of the surrenderable loss
To claim the relief you need to be an SME and show how your project meets HMRC’s definition of R&D.
The fall in the amount of funding is thought to be partly to do with the pandemic, but also the Government’s move to clamp down on fraud and errors by requiring claims to go digital.
From 1 April 2023, applications for all R&D reliefs, either for a deduction or a tax credit, must be made online as well as pre-registration of claims, regardless of the size of the business.
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