The amount of Research & Development (R&D) tax relief support claimed by UK businesses has fallen for the first time since the scheme began more than 20 years ago.
According to official statistics released by HMRC in September, firms claimed an estimate £6.6bn during the 2020/21 tax year – a 4% decrease from the previous year (£6.9bn).
This breaks a steady trend of growth in the amount of support claimed by UK businesses in recent years. Between the 2014/15 and 2019/20 tax years, the figure rose by an average of around 17% each year.
However, the downturn in the amount of relief claimed runs counter to the overall number of claims made.
The new figures report an estimated total of 89,300 claims made during the 2020/21 tax year, a 7% rise from the previous year.
This means there was a 10% decrease in the average value of claims during the 2020/21 tax year.
According to Jenny Tragner, director and head of policy at R&D tax credit specialist ForrestBrown, this contrast appears to indicate an overall suppression of investment in innovation due to the pandemic.
However, she argued that this represents a contrast from the typical behaviour of businesses during an economic downturn, adding that more must be done by government to avoid “scaring off genuinely innovative businesses” and stimulate growth.
“We know from our own research that more than half of businesses intend to invest more in innovation in response to challenging economic conditions in future.
“HMRC’s statistics underline the importance of continuing reforms to R&D tax reliefs to ensure they can support the right innovation.”
‘Bogus’ R&D claims
But Tragner also acknowledged that the decrease in claim value could partly be driven by “HMRC’s own clampdown on fraud and error”.
Signs of weakness in the UK’s R&D regime came to light in March, 2022 as HMRC’s annual report for 2019/20 estimated that the revenue had overspent by £311m on R&D relief. Industry participants argued at the time that this may have depicted a spike in “bogus” claims.
The UK government responded in July, 2022 by publishing draft legislation proposing a number of administrative steps to the process of filing a relief claim.
They included providing the endorsement of a named senior officer, informing HMRC of the claim in advance of its submission, and including the details of any agent who has advised the company on the claim.
While acknowledging that these changes may serve to prevent abuse to the system, ForrestBrown warned of the risks at the time, arguing that they could “compromise its intended purpose” by disincentivising claims.
“[The measures] will provide the data HMRC needs to target the error and fraud which risks undermining the positive intent of R&D tax policy,” said Jayne Stokes, associate director at the firm.