VIEW THE HMRC R&D TAX STATISTICS 2023
Depending how you look at it, this year’s HMRC research and development (R&D) tax credit statistics illustrate an incentive gone awry – or a powerful benefit propelling the UK into the future. Our ability to see the reality, however, is hampered by HMRC’s data.
Amid the figures, we can see glimmers of good news, but also work to be done. As the UK’s leading R&D tax credit consultancy, ForrestBrown has always championed the transformative impact R&D tax reliefs have on innovative businesses. But in recent years, we have also campaigned for reform to secure the long-term success of the incentive.
82,950 businesses funded through R&D tax credits in 2019-20
Cost of support awarded is £7.4bn
19% increase in cost of support
Key R&D tax credit trends
As the UK slowly emerges from the COVID-19 pandemic, our recovery hinges on innovation. We need to super-charge economic growth. The answer lies in R&D.
Although these statistics pre-date COVID, they indicate a trend which has already led to a tightening of HMRC’s approach to R&D tax relief. However, increased enforcement that is led by bad data could turn off the funding tap right when businesses need it most.
The big trend to emerge from this year’s HMRC R&D tax credit statistics is the continued discrepancy between HMRC’s figures and the government’s official measure of business R&D expenditure (BERD). We’re either on track to meet our national R&D expenditure goal – or something’s going wrong.
Trend one
A roaring success – or costly mistake?
The government’s aim is to increase the UK’s total R&D expenditure to 2.4% of GDP by 2027, from its current level of 1.7%. The increase in the incentive’s cost should, at first glance, be a promising bellwether for R&D growth.
But according to Office for National Statistics (ONS) data, what’s being paid out in R&D tax relief is increasingly unrelated to growth in R&D spend. The ONS’s BERD survey measures business expenditure on R&D. This figure is dwarfed by HMRC’s statistics.
Is HMRC paying out bogus claims or are HMRC’s figures accurate (and the UK’s business R&D expenditure as a percentage of GDP is at a healthy 2.2%)? HMRC’s language indicates the former: the statistics commentary focuses heavily on the ‘cost’ of the incentive rather than the R&D incentivised.
The number of SME claims (76,225: up 16%), relief awarded to SMEs (£4.4bn: up 25%) and the average SME claim (£57,330: up 7%) are all rising. We predict that the SME incentive will be a key focus for reform via the ongoing R&D reliefs government consultation and these statistics suggest that a streamlining of the rules is well overdue.
Trend two
The SME R&D heavyweights benefit from RDEC
We’ve seen in previous years that concerns RDEC would put SMEs off are unfounded. SMEs claiming under RDEC have significantly higher average claim values than their peers claiming in the SME scheme. The difference sits at over £13,000.
Dig deeper and the story becomes even more compelling. RDEC is substantially less generous than the SME incentive. Indeed, the data shows that SMEs claiming under RDEC, on average, claim 3.5 times the expenditure of those claiming under the SME incentive. This is despite the qualifying costs for RDEC being more restrictive than the SME scheme.
These aren’t outliers: there are more SMEs using RDEC than ever. Who are these SME dynamos and what lessons could we glean from their R&D programmes? Are subsidised and subcontracted R&D projects simply more expensive?
Unfortunately, the data doesn’t show how the relief awarded to SMEs under RDEC is split between the two main scenarios: grant funded and subcontracted R&D. Better understanding the composition between public versus private sector funded R&D would help policymakers make more informed decisions.
Trend three
Stable R&D investment in key industries, probably
In this year’s statistics, three sectors accounted for most claims by volume (64%) and devoured the largest share of support claimed (69%). This is wholly expected and consistent with previous years.
While the R&D intensity of these sectors (manufacturing, information and communication, and professional, scientific and technical) is unquestionable, the official designations lack nuance. The latter category, for example, includes lawyers, accountants and vets, so drawing conclusions from the data is a challenge.
Compared to the other industries in this cohort, manufacturing’s growth in total claim value is uninspiring, with just 11% growth compared to 33% and 32% respectively for the other sectors and a national average of 19%.
Considering that manufacturing is a cornerstone of the UK’s post-Brexit economic strategy, there is a clear case for more support to be directed to UK manufacturing. It will be interesting to see next year if this changes once COVID-19 hits this data.
Trend four
Scotland: the real Northern Powerhouse?
Scotland has seen the biggest overall increase in total number of claims (up 19%). This impressive R&D growth is built on three traditionally R&D intensive sectors, in particular: Renewables, manufacturing and technology.
The country’s green credentials are particularly noteworthy. It’s been very quick to adapt to a post-carbon future, and renewables produced 97.4% of Scotland’s electricity in 2020, and is soon to host the UN at the COP26 climate change conference.
The renewables sector is brimming with innovation, from creating new energy generation designs to installing supporting infrastructure.
Scotland’s case highlights that the green transition is not only necessary, but also a dynamic driver of innovation (and, as a result, economic prosperity). Scotland’s manufacturing sector – with strong support from Holyrood – and its growing tech scene are also promising areas of R&D.
A new era for R&D tax relief
R&D tax relief has now entered a period of renewal and reorientation. HMRC scrutiny is at an all-time high and it’s never been more important to understand how to protect your business and maximise your competitive advantage. Download our expert market report to find out more.
Benchmark my R&D claim
Are you one of the 82,950 businesses already investing in innovation and making an R&D tax credit claim?
If so, you’ll want to check how your R&D tax credit 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.
Average RDEC claim
Average SME claim value
Benchmark your R&D tax credit claim by region
How does your R&D tax credit claim compare to your peers?
And where are those businesses based? 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.
R&D in the North East
Blessed with shallow seams of coal near the coast, the North East’s past is irrevocably tied to the coal industry. But now, with the highest proportion of computer science students in England and exceptional digital connectivity, this region is fast becoming an epicentre of software development.
- 8,215 SMEs
- 440 Large companies
- 515 SMEs in large companies & RDEC
- £340m SMEs
- £90m Large companies
- £30m SMEs in large companies & RDEC
- £41,388 SMEs
- £204,545 Large companies
- £58,252 SMEs in large companies & RDEC
R&D in the North West
The North West continues to flex its creative muscle as it welcomes innovation in construction, advanced manufacturing, and media technology. It’s home to almost half of the UK’s ‘digital unicorns’ – a testament to this region’s entrepreneurial spirit.
- 8,045 SMEs
- 375 Large companies
- 500 SMEs in large companies & RDEC
- £350m SMEs
- £125m Large companies
- £25m SMEs in large companies & RDEC
- £43,505 SMEs
- £333,333 Large companies
- £50,000 SMEs in large companies & RDEC
R&D in the Midlands
The Midlands remain a powerhouse of manufacturing, but the region’s outstanding research facilities have also secured its future as the UK’s automotive hub. With HS2 offering a gateway to the best of Britain’s STEM talent, The Midlands now sit at the bleeding edge of battery-cell technology and autonomous vehicle development.
- 12,005 SMEs
- 615 Large companies
- 780 SMEs in large companies & RDEC
- £525m SMEs
- £420m Large companies
- £50m SMEs in large companies & RDEC
- £43,732 SMEs
- £682,927 Large companies
- £64,103 SMEs in large companies & RDEC
R&D in the East of England
The East of England offers an exciting hive of digital technology, with Cambridge proving a particular honeypot for tech investors. It’s ranked as one of the top three ‘innovation ecosystems’ in the world, and attracts global technology giants and ambitious start-ups alike.
- 7,340 SMEs
- 315 Large companies
- 440 SMEs in large companies & RDEC
- £495m SMEs
- £305m Large companies
- £40m SMEs in large companies & RDEC
- £67,439 SMEs
- £968,254 Large companies
- £90,909 SMEs in large companies & RDEC
R&D in London
As an epicentre of financial service institutions and disruptive Fintech firms, London forges an unparalleled path towards smart modern living. Its reputation for innovation in AI, blockchain and cyber is respected across the globe, and it continues to attract some of the world’s most ambitious engineers.
- 15,005 SMEs
- 1,205 Large companies
- 1,000 SMEs in large companies & RDEC
- £1.3bn SMEs
- £910m Large companies
- £95m SMEs in large companies & RDEC
- £87,971 SMEs
- £755,187 Large companies
- £95,000 SMEs in large companies & RDEC
R&D in the South East
The prosperous South East contends with London for domination of the UK’s tech scene. Companies in this region experience huge international demand for their products, which often include cutting-edge innovations in pharmaceuticals, life sciences and space technology.
- 11,180 SMEs
- 720 Large companies
- 835 SMEs in large companies & RDEC
- £695m SMEs
- £560m Large companies
- £70m SMEs in large companies & RDEC
- £62,165 SMEs
- £777,778 Large companies
- £83,832 SMEs in large companies & RDEC
R&D in the South West
It’s for good reason that ForrestBrown is based in the South West. In recent years we’ve witnessed incredible acceleration across a diverse range of sectors and have welcomed global attention for our aerospace and semiconductor production. Our region is the 3rd largest hub of tech investment in the UK.
- 5,895 SMEs
- 180 Large companies
- 385 SMEs in large companies & RDEC
- £230m SMEs
- £100m Large companies
- £20m SMEs in large companies & RDEC
- £39,016 SMEs
- £555,556 Large companies
- £51,948 SMEs in large companies & RDEC
R&D in Wales
- 2,655 SMEs
- 100 Large companies
- 185 SMEs in large companies & RDEC
- £125m SMEs
- £35m Large companies
- £15m SMEs in large companies & RDEC
- £47,081 SMEs
- £350,000 Large companies
- £81,081 SMEs in large companies & RDEC
R&D in Scotland
Scotland truly leads the front on decarbonisation, but its innovation agenda is not limited to the energy sector: it’s also on track to become one of the most efficient food producers in the world. The nation is poised as the data science capital of Europe and nurtures a collaborative community of innovative companies.
- 3,805 SMEs
- 280 Large companies
- 480 SMEs in large companies & RDEC
- £195m SMEs
- £115m Large companies
- £25m SMEs in large companies & RDEC
- £51,248 SMEs
- £410,714 Large companies
- £52,083 SMEs in large companies & RDEC
R&D in Northern Ireland
Once the beating heart of the shipbuilding industry, Northern Ireland is now one of the world’s top destination for financial services technology investment. It’s also a key base for global cybersecurity companies, who draw on its thriving tech talent and agile, homegrown software firms.
- 1,980 SMEs
- 120 Large companies
- 180 SMEs in large companies & RDEC
- £90m SMEs
- £35m Large companies
- £10m SMEs in large companies & RDEC
- £45,455 SMEs
- £291,667 Large companies
- £55,556 SMEs in large companies & RDEC
Benchmark your SME R&D tax credit claim by sector
The average SME R&D claim value has risen this year, with many more companies claiming north of £50,000. These SMEs shouldn’t rest on their laurels, however. An expert adviser can ensure every penny possible is claimed.
Agriculture, Forestry, Fishing R&D Claims
In this sector, innovation is often driven by sustainability targets. Businesses need to find new ways to increase their yields while minimising their climate impact. The number of SME claims in this sector has doubled (from 555 to 1,035) – which has ‘greenwashed’ average SME claim values down from to £38,647 from £44,444 last time.
What counts as R&D in this sector?
- Developing or modifying machinery or equipment.
- Experimenting with new renewable energy technology, such as solar, biomass and anaerobic digestion.
- Creating new pesticides, fertilisers, or other chemicals to increase yield.
- 1,035 Agriculture, Forestry, Fishing R&D Claims
- 76,225 All SME Claims
- £40m Agriculture, Forestry, Fishing R&D Claims
- £4.4bn Value of all SME claims
- £38,647 Average claim value for Agriculture, Forestry, Fishing
Mining & Quarrying R&D Claims
This sector forms the bedrock of much of the British economy, with many manufacturers and construction firms relying upon its produce. The scope for R&D in the industry is relatively small – but when R&D does happen, an SME R&D tax credit claim can be significant at £90-£100k.
What counts as R&D in this sector?
- Developing a new process for lifting and positioning heavy plant into a structurally fragile site.
- Creating alternative methods to extract harmful materials.
- Creating a software analysis platform for the mining industry.
- 65 Mining & Quarrying R&D Claims
- 76,225 All SME Claims
- £5m Mining & Quarrying R&D Claims
- £4.4bn Value of all SME claims
- £76,923 Average claim value for Mining & Quarrying
Manufacturing R&D Claims
The mammoth manufacturing sector – comprising more than 288,000 businesses – now receives the second highest amount overall in R&D tax credits (£785m) with 16,265 firms claiming (an additional 710 firms since last year). This may explain why average claim amounts (£48,263) are stagnant and remain slightly less than the overall UK average £57,330.
What counts as R&D in this sector?
- Mechanical equipment fixture, design and development.
- Designing innovative software-based process controls.
- Automating production processes or integrating robotics.
- 16,265 Manufacturing R&D Claims
- 76,225 All SME Claims
- £785m Manufacturing R&D Claims
- £4.4bn Value of all SME claims
- £48,263 Average claim value for Manufacturing
Electricity, Gas, Steam & Air Conditioning R&D Claims
This sector, more than any other, grapples with the challenges of meeting Net Zero targets. Innovation is therefore rife, and as a result, businesses in this sector usually enjoy significant claim values. It is surprising then that the average SME claim is down 42% year on year at £64,516, although this remains above the SME average. As we work collectively towards a sustainable future, the disruptive SMEs who use R&D tax credits to fund their innovation will restore the positive momentum.
What counts as R&D in this sector?
- Improving or developing alternative heating and cooling systems.
- Developing bespoke ventilation, plumbing and refrigeration systems.
- Retrofitting modern systems into listed period buildings.
- 155 Electricity, Gas, Steam & Air Conditioning R&D Claims
- 76,225 All SME Claims
- £10m Electricity, Gas, Steam & Air Conditioning R&D Claims
- £4.4bn Value of all SME claims
- £64,516 Average claim value for Electricity, Gas, Steam & Air Conditioning
Water, Sewerage & Waste R&D Claims
Water, waste and sewerage industries are middle of the road in terms of R&D intensity, though any improvements to infrastructure could offer opportunities to claim. The sector this year arrested a trend of declining average values in the two prior years with an additional 65 claims and an 8% increase in value (to £52,632) bringing it that bit nearer to the general claim average.
What counts as R&D in this sector?
- Creating a system for removing solids from water in C/D floatation tanks.
- Developing new methods to control pathogens.
- Implementing novel energy recovery techniques.
- 475 Water, Sewerage & Waste R&D Claims
- 76,225 All SME Claims
- £25m Water, Sewerage & Waste R&D Claims
- £4.4bn Value of all SME claims
- £52,632 Average claim value for Water, Sewerage & Waste
Construction R&D Claims
With just 500 additional claims year on year and a stagnant average claim value, it is clear that a significant amount of untapped R&D remained in the construction sector during the period. Many eligible firms still just were not making use of R&D tax credits (there were 5,585 claims in total) and an average claim value of (£53,715).
What counts as R&D in this sector?
- Integrating new or improved technology into buildings.
- Modifying existing components and fittings into bespoke projects.
- Developing structures from novel construction materials.
- 5,585 Construction R&D Claims
- 76,225 All SME Claims
- £300m Construction R&D Claims
- £4.4bn Value of all SME claims
- £53,715 Average claim value for Construction
Wholesale & Retail Trade, Repairs R&D Claims
Wholesale, retail and trade repairs sectors still accounts for 12% of SME R&D tax credit claims. Average claim value, however, is only 60% of the national average at £34,679. Consumer retail is the focus of this category, which has become increasingly e-commoditised over recent years. This category excludes repair of cars and motorcycles.
What counts as R&D in this sector?
- Developing a bespoke ecommerce platform.
- Creating a fixture management platform to help global retailers manage stock reporting and availability.
- Re-creating existing products using more cost-efficient and eco-friendly materials.
- 8,795 Wholesale & Retail Trade, Repairs R&D Claims
- 76,225 All SME Claims
- £305m Wholesale & Retail Trade, Repairs R&D Claims
- £4.4bn Value of all SME claims
- £34,679 Average claim value for Wholesale & Retail Trade, Repairs
Transport & Storage R&D Claims
Businesses in this sector are now actively contending with pressures to decarbonise and limit their environmental impact. R&D tax reliefs have provided not just an incentive, but also an opportunity for businesses to contribute to the Net Zero mission while streamlining their processes. There were 110 additional claims in this sector, with 675 SME claims totalling £30m. The average transport and storage claim (£44,444) is still lower than the average SME benefit. There’s still value left on the table here and the technology road map indicates an exciting journey ahead for the sector.
What counts as R&D in this sector?
- Developing software solutions to markedly improve fulfilment efficiency.
- Designing or customising equipment such as conveyor transfer systems for loading freight.
- Designing of developing freight lifting solutions for industrial premises like freight interchanges or storage facilities.
- 675 Transport & Storage R&D Claims
- 76,225 All SME Claims
- £30m Transport & Storage R&D Claims
- £4.4bn Value of all SME claims
- £44,444 Average claim value for Transport & Storage
Accommodation & Food R&D Claims
Innovation in the food industry usually arises in new product development or in production processes. The number claiming R&D tax credits is significant and could be more so, despite sitting in the lower quartile in terms of average claim amounts (£23,622).
What counts as R&D in this sector?
- Creating new chilling methods to speed up production without affecting the texture of the product.
- Experimenting with reformulation to meet nutrition regulations.
- Creating sustainable, eco-friendly living environments.
- 635 Accommodation & Food R&D Claims
- 76,225 All SME Claims
- £15m Accommodation & Food R&D Claims
- £4.4bn Value of all SME claims
- £23,622 Average claim value for Accommodation & Food
Information & Communication R&D Claims
While its share of total SME claims has declined a little, ICT still represents a substantial chunk (22%) of SMEs benefitting from R&D tax credits. Computer programming, publishing and telecoms continue to benefit greatly from the reliefs, with an average claim value of £66,210. This being slightly higher than the overall average SME claim (£57,330). The sector brims with R&D opportunities for its large base of SMEs.
What counts as R&D in this sector?
- Developing a new malware detection software.
- Developing a natural language processing technology to understand, interpret and manipulate human language.
- Integration, developing or improving legacy systems.
- 17,230 Information & Communication R&D Claims
- 76,225 All SME Claims
- £1.1bn Information & Communication R&D Claims
- £4.4bn Value of all SME claims
- £66,454 Average claim value for Information & Communication
FInancial & Insurance R&D Claims
With the City of London continuing to attract ambitious Fintech entrepreneurs and technical talent, the financial services and insurance industry remains robust and innovative. Despite being only a small slice of overall SME claims, the sector’s average claim is significantly higher than the average SME claim (£95,833 compared to £57,330).
What counts as R&D in this sector?
- Inventing new risk management technology for insurance e.g. telematics, sensors and augmented reality.
- Automation of operations and use of blockchain or DLT.
- Developing and improving on legacy banking systems.
- Integrating open APIs (open banking mandated post PSD II).
- 1,200 FInancial & Insurance R&D Claims
- 76,225 All SME Claims
- £115m FInancial & Insurance R&D Claims
- £4.4bn Value of all SME claims
- £95,833 Average claim value for FInancial & Insurance
Real Estate R&D Claims
The commercial property market has boomed this year. This may well be reflected in R&D claims in the coming years, if real estate firms make use of their mass-gathered data. In the meantime, SME R&D tax credit claim volumes (430) tend to sit at the lower end of the spectrum with a lower average claim value (£ 34,884) than the overall (£57,330).
What counts as R&D in this sector?
- Developing algorithms to analyse rental value and determine the market value of a property.
- Creating a visualisation tool to help an on-site team to synthesise information into an immersive model.
- Building an online marketplace for housing.
- 430 Real Estate R&D Claims
- 76,225 All SME Claims
- £15m Real Estate R&D Claims
- £4.4bn Value of all SME claims
- £34,884 Average claim value for Real Estate
Professional, Scientific & Technical R&D Claims
Just over one fifth (19%) of the tax relief claimed via the SME R&D tax-credit incentive goes to companies in this category. While this share is lower than last year, more businesses are claiming and average claim values stable year-on-year (£77,985).
What counts as R&D in this sector?
- Developing new ways to detect and monitor health conditions.
- Developing new systems to test network security.
- Developing a bespoke ERP system for professional services clients.
- 14,490 Professional, Scientific & Technical R&D Claims
- 76,225 All SME Claims
- £1.1bn Professional, Scientific & Technical R&D Claims
- £4.4bn Value of all SME claims
- £77,985 Average claim value for Professional, Scientific & Technical
Admin & Support Services R&D Claims
This category encompasses travel agencies, security and investigation activities and general business support services. This diverse cast often take on rather niche and one-off projects, which comprised 6% of the SME claims submitted. These claims are just off the national average, tipping the scales at £52,004 compared to £57,330 overall.
What counts as R&D in this sector?
- Integrating business software with legacy office systems.
- Creating a new piece of brochure production software for the travel sector.
- Developing a bespoke CRM system to manage its business functions.
- 4,615 Admin & Support Services R&D Claims
- 76,225 All SME Claims
- £240m Admin & Support Services R&D Claims
- £4.4bn Value of all SME claims
- £52,004 Average claim value for Admin & Support Services
Education R&D Claims
Many higher education institutes have invested in EdTech (educational technology) to support their students beyond the classroom. The hardware and software development involved in this technology can be complex. Particularly when it comes to assistive technologies, which also require in-depth knowledge of human behaviour. The average education SME claim (£35,928), however, is below that of the average SME benefit (£57,330).
What counts as R&D in this sector?
- Developing a new online platform to facilitate collaborative remote learning.
- Creating a digital portal through which teachers can do their daily admin (attendance, marking, reading assignments).
- Integrating VR and AR to education software to enable better provision for SEN students.
- 835 Education R&D Claims
- 76,225 All SME Claims
- £30m Education R&D Claims
- £4.4bn Value of all SME claims
- £35,928 Average claim value for Education
Arts, Entertainment & Recreation R&D Claims
Modern technology has reshaped how we make and consume art. The arts are a burgeoning breeding ground for innovation. More businesses in this sector are claiming than ever before (965) and the average claim value has dramatically increased from £43,210 to £77,720.
What counts as R&D in this sector?
- Designing a lighting control system to run both the performance lighting and the house lighting from the show control desk.
- Creating an AV infrastructure that can live stream video and audio across multiple screens.
- Designing an off-the-shelf software for online music distribution.
- 965 Arts, Entertainment & Recreation R&D Claims
- 76,225 All SME Claims
- £75m Arts, Entertainment & Recreation R&D Claims
- £4.4bn Value of all SME claims
- £77,720 Average claim value for Arts, Entertainment & Recreation
Other services activities R&D Claims
The presence of an ‘Other service activities’ category alone demonstrates the dynamic nature of business activities in the UK. Other services may include businesses that don’t define themselves as one definite sector, and as a result, it’s difficult to conjecture why claim value is so low. Around 2% of all SME claims align to the other services sector, generating an average claim value of £36,232.
What counts as R&D in this sector?
- 1,380 Other services activities R&D Claims
- 76,225 All SME Claims
- £50m Other services activities R&D Claims
- £4.4bn Value of all SME claims
- £36,232 Average claim value for Other services activities
A new era for R&D tax relief
R&D tax relief has now entered a period of renewal and reorientation.
HMRC scrutiny is at an all-time high and it’s never been more important to proactively review your claim and sense-check the advice you’re receiving.
Download our insight packed market report to learn more about the state of play and what the government’s consultation could mean for your business.
Download now
We’d love to hear from you
ForrestBrown works with businesses at every stage of their growth and innovation journey. The advice you require is unique to you and your business – and we can help you use R&D tax relief to your best strategic advantage. Get in touch to speak to one of our team of chartered tax advisers, sector specialists and former-HMRC inspectors.
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