Changes spark steep fall in SME R&D tax credit claims
The number of SMEs claiming research and development (R&D) tax credits fell by nearly a third in 2023-24, according to newly published figures.
A report from HM Revenue & Customs (HMRC) reveals that the overall number of claims by businesses fell by 26 per cent to the lowest figure in nearly a decade – with a 31 per cent drop when it came to SMEs.
These are the first statistics affected by the change in relief rates for the SME and R&D expenditure credit (RDEC) schemes.
The period is also the first full tax year where all claims had to be supported by an additional information form, one of the administrative changes the HMRC says were introduced “in order to improve levels of compliance”.
The figures reveal a bigger drop in the number of claims for up to £15,000 of tax relief compared to larger ones of above £250,000. First-time claims from SMEs also plunged by 45 per cent.
The RDEC scheme was introduced in April 2013 for large companies. The SME scheme was introduced in 2000 allowing smaller companies to claim a deduction from corporation tax liability based on their enhanced R&D expenditure or to claim a payable tax credit if the company is loss making.
In the 2022 Autumn Statement the government announced cuts in both rates. The enhancement rate was lowered to 86 per cent and the credit rate to 10 per cent.
The HMRC report shows that the amount of tax relief claimed through the SME scheme fell by 29 per cent compared with the previous year, to £3.15billion, while the amount of relief claimed through RDEC rose by 36 per cent to £4.41bn.
All the downward trends highlight the impact the reduced relief rates and the increased administrative effort needed to apply for them has had on SMEs.
They also raise questions about how the changes may be negatively affecting innovation and growth plans in small businesses.
However, our message is clear. While there has been a sharp drop in the number of claims and the process may be more complex, smaller businesses should not be put off taking full advantage of R&D tax credits.
They can still be a powerful tool for ambitious SMEs working hard to drive growth through innovation.
We are here to help eligible businesses, whatever their size or sector, take full advantage of the scheme.
We will work with you to assess if your business qualifies and deliver full support and guidance in navigating the claims process.
• To discuss how we can support you in making a claim for R&D tax credits please contact me on 01772 430000
