Why the number of SME scheme applications has decreased for the first time in 14 years

At a glance, it appears that although there is a reduction in R&D claims due to the COVID-19 pandemic, there continues to be investment in R&D despite the adverse global economic conditions within the UK.

The estimated total amount of R&D tax relief claimed was £6.6 billion, a 4% decrease on the previous year. Although initially this could be concerning, the estimated total number of R&D tax credit claims was 89,300, a 7% increase on the previous year. Therefore, there was a decrease in the average value of claims in 2020 to 2021. This suggests that although the COVID-19 pandemic prevented some companies from carrying out their normal levels of R&D activity, there was still strong investment.

The 2022 and 2021 R&D statistics mirror each other in many ways. The regional distribution of R&D tax credits remains similar, where there is a large concentration of claims with registered offices in London (21% of the total claims). This is followed by claims in the south east and north west respectively. Additionally, the breakdown of industry sectors claiming R&D tax credit claims remain similar to previous years with a strong concentration in the number of claims in the Information and Communication (22%) and Manufacturing sectors (21%). However, there has been a difference in the total amount of R&D claimed by sector, particularly in Manufacturing, which has decreased from 25% of the total amount claimed to 23%. This reflects the impact that the pandemic has had on this sector. 

The published statistics show some stark differences compared to prior years. The cost band analysis shows the distribution of R&D tax credit claims by cost band. As expected, there is a concentration in the number of claims in the lower bands (72% in cost bands up to £50k), which corresponds to the large volume of claims in the SME scheme. However, there is a 7% decrease in the ‘over £2 million’ band, which illustrates the reduction in expenditure of the RDEC claims. Interestingly, there was a reduction in the number of first-time applicants in the SME scheme at a 7% decrease from the previous year. This is the first time in 14 years that there has not been growth in the number of first-time applicants in the SME scheme and illustrates the difficulty in investing in R&D during the COVID-19 pandemic. 

Overall, the results show that there is still strong investment in the UK for undertaking research and development activities and the results are a positive testament to HMRC’s R&D tax credit scheme. 

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Now  HMRC’s statistics have been published, it is clear that the amount of R&D relief has decreased which may have had a direct impact on your claim benefit. If your claim has dropped or you’re not claiming, get in touch now to see how you could maximise your R&D claim.