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HMRC R&D tax credit statistics 2019 - All you need to know

Jenny Tragner 2019
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HMRC statistics 2021

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The same story emerges again and again throughout this year’s HMRC R&D tax credit statistics: total claims are up but average values are down. It’s good news that more businesses across a wide range of sectors are using these valuable incentives, but the question of whether these companies are acting on bad advice looms large.

14315

new claimants

43 %

of all tax credit benefit goes to 7% of companies

77 %

of all SME claims are worth less than £50,000

Key R&D tax credit trends

Overall, the number of SMEs making an R&D tax credit claim has increased but many of these additional claims are low value. Nearly a fifth receive less than £5,000. There is a growing legion of SMEs accessing the large company (RDEC) incentive for their grant-funded or subcontracted R&D. These SMEs have enjoyed, on average, larger benefits.

For large companies, the average benefit is £600,977 — the equivalent of 15 new STEM jobs. A top echelon of large companies (7%) receives nearly half (43%) of all money claimed.

Like last year, these statistics are based on partial data, which limits data accuracy to indicative trends. Any non-standard claims – those not submitted via a CT600 – do not feature. And this year, a large volume of claims were not processed in time for the data cut-off due to significant delays within HMRC earlier this year. We are therefore expecting significant changes when the data is completed next year.

RDEC trend one

A big reward for big businesses

At £315,789, the average RDEC claim has risen since last year (£297,872 in 2016-17). But this doesn’t reveal the full story. There is a huge gap between the average benefit claimed by large companies through the RDEC incentive (£600,977) and what SMEs claim (£64,562).

Large businesses comprise 7% of all claimants but gobble up nearly half (43%) of all the funding awarded by the government. It’s important to note, however, that this isn’t a negative.

Large businesses will naturally have a higher cost base than most SMEs, and R&D tax credits aren’t a fixed pot of money. It is important that all eligible businesses make a claim and that the right amount of funding reaches each one.

Average RDEC claim value
RDEC trends - RDEC claims by type of company over time
RDEC claims by type of company

RDEC trend two

More SMEs continue to access RDEC

At the cut-off date for these statistics, 30 June 2019, HMRC was facing significant processing delays for RDEC claims made by SMEs. Six months of data are likely missing from these statistics, and so our analysis is based on a forecast of the actual data.

Since RDEC was introduced in 2013, we’ve seen a steady increase in the number of SMEs making use of this incentive — and this rising trend continues unabated. In most instances, these are grant-funded SMEs that are prohibited by EU state aid rules from using the SME credit. As a workaround, these companies can use RDEC. Despite RDEC actually being less generous than the SME incentive, these companies are benefitting from a larger claim value (£64,562) than their pure SME incentive counterparts (£53,714).

SME trend one

More SMEs claiming than ever

SMEs have made at least 42,075 R&D tax credit claims – 87% of all claims made – and we expect this number to rise well beyond this once the final data is available. Drilling deeper, we see HMRC reports nearly 7,000 first time applicants in 2017-18. This figure, too, will rise as the year progresses.

Based on our analysis, we forecast the number of first-time claimants will eventually be reported in excess of 14,000. Given this five-year trend, we would have expected HMRC to anticipate this and be better prepared to process these claims. Instead, businesses have faced significant delays in processing times in recent months – although we are pleased to report that this has now been addressed.

Number of first time SME claimants
Number of first-time SME claimants
Average SME claim value
Average SME claim value

SME trend two

Untapped value for stagnating claim values

This year’s partial statistics report an average SME claim value of £53,714. A healthy figure and a small increase on last year’s data – but there’s a sting in the tail. The trend is for this partial figure to deflate when we get the full results.

Based on our analysis, ForrestBrown expect the actual figure will be around £49,000. This transforms the story around SME claim values from a small but steady increase to stagnation. Companies seeking to navigate past this plateau should consider speaking to a specialist R&D tax credit adviser; one that can offer you strategic advice on how to add value to your claim year-on-year.

SME trend three

Beware the rising tide of smaller claims

The likely culprit behind the flattening average claim values is the very high number of small value claims being made. Over three-quarters (77%) of SME claims are worth less than £50,000 and surprisingly, 18% of all claims are worth less than £5,000.

This doesn’t match our own experience. Carrying out R&D is an expensive activity, and so this proportion of very small claims is very surprising. It is hard to believe that so many SMEs are spending less than £10,000 annually on R&D.

It could be that these SMEs are nervous about the process and make a small claim. They are sometimes advised to do so, in error, in the hope of mitigating the risk as HMRC pushes for quality. Our concern for those claiming is that we have seen a recent spate of adverts from spurious advisers mislabelling what constitutes R&D.

Just because a claim is small doesn’t make it high-quality. If you are an SME and you’ve made a very small R&D tax credit claim, we’d recommend choosing your adviser wisely to ensure your business is protected and receiving what it is due.

Breakdown of SME claims by size
Breakdown of SME claims by size

Choose an R&D tax adviser wisely with our foolproof checklist

With large sums of money at stake, it pays to choose an R&D tax credit adviser with care. Unfortunately, R&D tax credits are an area where myth and misinformation have spread.

As a member firm of the Chartered Institute of Taxation, here at ForrestBrown, we are bound by ethical guidelines. In the spirit of being open, honest and fair: here are ten hallmarks that you can reasonably expect to see in a better-quality R&D tax credit adviser.

Benchmark my claim

Are you one of the 48,635 businesses already investing in innovation and making an R&D tax credit claim?

If so, you’ll want to check how your claim stacks up against businesses in your region and your sector for peace of mind that you’re making the most of this valuable source of funding.

£ 315789

Average RDEC claim value

£ 53709

Average SME claim value

Benchmark your R&D tax credit claim by region

How does your claim compare to your neighbours?

A quick note: Regional allocation is based on the postcode of the company’s registered address, which might not correspond to where R&D takes place.

Benchmark your SME R&D tax credit claim by sector

The average SME claim value is stagnating and three-quarters of the claims made are worth less than £50,000. There’s an opportunity for these SMEs to seek out expert advice to ensure they’re getting what they truly deserve.

Analyse how your claim stacks up against your competitors. We can help you identify an opportunity to uncover additional value.

Speak to us to benchmark your claim against our data

For complete peace of mind that your claim is fully maximised, speak to our team of chartered tax advisers, sector specialists and former HMRC inspectors.

With HMRC’s renewed focus on the quality of claims, you can ask us to review your claim for potential risks. Just because your claim was accepted in the past, doesn’t guarantee it will be again in the future.