According to HMRC, the following is a summary of R&D Tax Credit filing statistics for 2022-2023.
- 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
- 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%
- 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
- 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%
- 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:
- We developed prototypes and made iterative changes to the design based on test results
- We formulated a hypothesis or defined potential solutions to solve our problem/increase knowledge that was validated with a set of experiments
- Using the normal ranges of parameters on the available equipment/methods, we carried out tests and trials
- We modified existing methods/processes to fine-tune and optimise the results based on novel understanding brought from our work
- We applied known industry or company practices when faced with the problem
- 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.