Why has the number of first-time SME scheme applicants continued to decrease?

R&D tax credits statistics: September 2023

The statistics show that there is still strong investment in the UK for undertaking research and development activities, demonstrating a positive testament to HMRC’s R&D tax credit scheme. However, this is the second consecutive decrease in first-time applicants under the SME scheme.

The total number of R&D tax relief claims for 2021-22 is estimated to be £90,315, a 5% increase on the previous year. This is reflected in the estimated total amount of R&D tax relief claimed of £7.6 billion, an 11% increase on the previous year. Over half of the total value claimed was under the SME scheme, with £4.8 billion claimed. This is a positive testament that there was strong investment in R&D activity within the UK, which suggests economic recovery from COVID-19 as there was no growth in the previous 2020-2021 period. 

The 2023 R&D statistics generally follow trends set in the 2022 period. For example, the regional distribution of R&D tax credits remains similar to previous periods, where the highest value of claims and the largest number of claimants come from claimants with registered officers in London (22%). This is followed by claims in the South East and East of England, respectively. There is also a similar breakdown of industry sectors claiming R&D tax credits from the 2022 period, with a high number of claims in the Information and Communication (23%), Manufacturing (23%), and Professional, Scientific and Technical sectors (16%). Similarly, the cost band analysis shows the distribution of R&D tax credit claims by cost band. The largest concentration in the amount claimed is in the ‘over £2m’ band (27%), reflecting the increase in RDEC claims. However, as expected, there is still a large concentration in the number of claims in the lower bands (69% in cost bands up to £50k), which corresponds to the large number of SME claimants.

So why has the number of first-time SME scheme applicants continued to decrease?

Interestingly, despite the increase in the total amount of R&D tax relief claimed, this is the second consecutive decrease in the number of first-time applicants in the scheme. Specifically, the number of first-time applicants in the SME scheme has decreased by 3% from the previous year. This reduction could illustrate the result of the consistent changes to the scheme, making it increasingly challenging for claimants to apply. Ultimately, because the statistics lag, the turbulence since HMRC’s crackdown on R&D tax credit fraud, which has targeted SMEs in particular, will be absent from these statistics. HRMC’s approach to the R&D tax credit scheme may reduce the number of genuine claimants from submitting R&D claims and have a direct effect on innovation within the UK. However, we must wait until the 2024 statistics to understand the impact of HMRC’s approach to fraud within the R&D scheme.

How we can help

We're here to support you with preparing and claiming R&D tax credits fully. Should you choose to get specialist R&D advice from Buzzacott, we will:

• Identify if your business qualifies for the SME scheme
• Carry out a comprehensive review of your R&D activity, working with you to ensure you're maximising your claim
• Prepare a claim that minimises potential HMRC queries
• Guide you through the SME claim process or on specific aspects of the claim.

Get in touch

If you would like to speak to one of our R&D experts to find out more about how we can help, please get in touch via the form below.