2023 R&D Claim Statistics: What do they reveal?

Fraud prevention and compliance:

The drop in claim numbers is linked to HMRC’s increased scrutiny. HMRC estimates fraud and error levels to be around 20%, with smaller claims showing higher rates of non-compliance. However, the financial impact of fraud is larger in claims over £100,000 in qualifying expenditure, even though the statistics highlight that fraud is more prevalent in smaller claims.

Unexpected trends in large claims:

Despite compliance efforts that appear to be reducing the number of smaller claims, claims in the larger claim value brackets where the financial impact is bigger have increased. For instance, claims in the £250,000–£500,000 bracket have risen by nearly 20%, despite a non-compliance rate of 13%. This raises questions about whether fraudsters are shifting to larger claims, and whether current fraud prevention efforts are focused in the right areas.

Impact on sectors:

Certain sectors have seen a steeper drop-off in claims, particularly those where HMRC has publicly stated that they believe the work undertaken is not typically associated with R&D, like retail and wholesale, where claims fell by 50%. But this position is not backed up by HMRC’s own data where non-compliance in the retail and wholesale sector was only around average at 18%. Is this marked decrease in claims in this sector a sign of legitimate claimants being put off by the fear of a protracted enquiry?

Challenges for smaller claims:

Smaller claims in the £5,000 to £15,000 range dropped by 35%, which is significantly above the fraud rate identified in this bracket. These companies have less money to fight an enquiry, and we are concerned that some legitimate start-up claimants may have abandoned the scheme due to perceived complexities or risks. Start-ups, in particular, may be deterred, which could have long-term consequences for innovation.

The more worrying statistics released after the October budget is that, of cases being pursued to ADR, roughly half are being upheld as valid claims. This does suggest that many claims being branded as non-compliant are being harshly challenged and that companies might be right in abandoning the scheme when they have to resort to mediation to regard their legitimate R&D support. 

Looking ahead: what should happen now?

As the UK government considers further changes to R&D tax credits, businesses need to stay informed and adaptable. New compliance measures, like the online information form, signal a continued focus on fraud prevention, but companies should not be discouraged from claiming. With proper documentation and an understanding of evolving regulations, businesses can continue to benefit from the scheme.

It was good news that in the Autumn Budget R&D tax credits were retained and HMRC are consulting on an expansion of the pre-approval scheme available to new claimants. However, eligible businesses are deterred from claiming due to uncertainty and the scheme risks becoming ineffective, and although it is good to see that MPs are looking into this, companies need changes now. Clearer guidelines and more support for genuinely innovative companies are essential to restore trust and ensure the scheme remains competitive with those in other countries, such as Ireland, France, and Canada.

How can we help?

While the 2023 data shows a decrease in claims, businesses with valid R&D projects should not be discouraged. Our team can help navigate the complexities of the compliance landscape, ensuring that businesses accurately document their activities and maximise their claims. We can assist with internal audits to ensure your R&D projects meet HMRC standards and fully capitalise on available tax relief.