According to HMRC, the following is a summary of R&D Tax Credit filing statistics for 2022-2023.

  1. The provisional estimated amount of total R&D Tax relief support claimed for the tax year 2022 to 2023 was £7.5 billion. An increase of 1% from the previous year. This corresponds to £46.7 billion of R&D expenditure, 4% higher than the previous year
  2. The amount of tax relief claimed through the SME scheme fell by 3% compared with the previous year. While the relief claimed through the RDEC scheme increased by 7%
  3. The total number of R&D Tax Credit claims for the tax year 2022 to 2023 was 65,690, a decrease of 21% from the previous year. The decrease occurred in both SME and RDEC schemes
  4. The most notable impact was in the SME scheme, where the volume of claims is 23% lower than the previous year. In comparison, claims for the RDEC scheme fell by 9%
  5. There is an above-average drop in the number of claims up to £15,000 and an increase in the number of claims above £250,000. This has resulted in a 28% increase in the average claim value compared to the previous year. This explains why despite a large drop in the volume of claims, the total cost has grown slightly

    Insights

    It would appear that HMRC’s increase in compliance checks is having the desired effect of decreasing R&D Tax Credit claims. 

    There was no doubt that fraudulent claims were made, But also companies were filing R&D Tax Credit claims that simply were not eligible. Some of these companies felt they were carrying out R&D but did not truly understand the criteria.

    Part of this is understandable, as the criteria may seem vague to many.

    Take a look at the following typical comments made by companies making R&D Tax Credit claims:

    1. We developed prototypes and made iterative changes to the design based on test results
    2. We formulated a hypothesis or defined potential solutions to solve our problem/increase knowledge that was validated with a set of experiments
    3. Using the normal ranges of parameters on the available equipment/methods, we carried out tests and trials
    4. We modified existing methods/processes to fine-tune and optimise the results based on novel understanding brought from our work
    5. We applied known industry or company practices when faced with the problem
    6. We hired someone knowledgeable to do the work for us

    Only comments a) and b) are indicative of qualifying R&D.

    Yes, this is a superficial review, but comments under points c) to f) above are problematic. if a company applies known solutions to develop a new product with no technological uncertainty, it will not qualify.

    For example, a company licenses an AI model and applies it to the data the company collects. This is very complex and time-consuming, but no new technology has been developed nor has an AI algorithm or model been created.

    Along these lines, optimisation, fine-tuning, and trial and error are not really indicative of qualifying R&D. Generally, there is no technological uncertainty associated with these activities.

    Many also think researching to find the right parts or components that will achieve improved functionality or performance standards is R&D; it is  not? Again no new technology is being developed.

    How can RDP help with your R&D Tax Credit claim?

    Assessing an eligible R&D project is not a straightforward task.

    RDP has assisted in filing over 10,000 R&D Tax Credit claims for the past 35 years.

    Our technical team of software specialists, engineers, and life science professionals has the academic and industry experience to identify eligible R&D projects and prepare the necessary information that meets HMRC requirements.

    RDP can assist in assessing if the company is eligible to make an R&D Tax Credit claim at no charge. This typically occurs over a short 30-minute call with the company.

    So, if you have any clients interested in our free assessment or want to know more about the latest R&D Tax Credit statistics how to make a R&D Tax Credit claim. Please don’t hesitate to contact Jenni at [email protected]

    RDP is offering a free webinar to you and your colleagues. This is on the significant changes in R&D Tax Credits over the past 2 years. If you are interested, please get in touch.