R&D tax relief increases by 11% in 2021-22
R&D tax relief increases by 11% in 2021-22
New figures released by HMRC today show that the numbers of claims for R&D tax relief rose by 5% in 2021-22 while the average amount claimed rose by 6%, an increase due in part to increased R&D activity following the COVID-19 pandemic.
Taken together, the estimated amount of total Research and Development (R&D) tax relief claimed for the tax year 2021 to 2022 was £7.6bn, an 11% increase from the previous year. This corresponds to £44.1 bn of R&D expenditure, 8% higher than in the previous year.
While the figures show a slight increase in the numbers of SMEs claiming tax relief and a 14% increase in total support claimed under the SME scheme, the figures may represent the high watermark for such claims, amid efforts to clamp down on fraud and error in the system and improve value for money for taxpayers.
The new figures for 2021-22 follow the publication of a recent shock report which highlighted the high prevalence of error and fraud in R&D claims.
HMRC’s analysis of R&D claims in 2020-21 published in July this year estimated that almost a quarter (24.4%) of claims by value in the SME scheme and 3.6% of claims in the RDEC scheme were either incorrect or fraudulent – with a combined cost to the Exchequer of an estimated £1.13bn.
To address these issues, HMRC has put in place a programme of educational activity focused on the areas of highest risk. It has also doubled the number of people working in R&D compliance over the last three years, adding an extra 300 staff to tackle non-compliance. In July 2022, it created a new Anti-Abuse Unit to tackle incorrect claims and open enquiries into the most complex cases.
In April 2023, the government reduced the rate of relief for the SME scheme and in August 2023, new rules came into force requiring each claim to be accompanied by additional information so HMRC can better identify and target higher risk claims.
Carrie Rutland, Head of Innovation Incentives Policy at BDO said:
“HMRC has been rightly concerned about error, fraud and ‘boundary pushing’ when it comes to R&D tax relief and has introduced a number of measures to clamp down on non-compliance.
“However, many of these measures were not in force in 2021-22, so there may be a time lag before we see their impact on the numbers of claims and the amounts of relief paid out.
“While the direction of travel suggests that we may see a decline in the number of claims in the future, R&D relief will continue to be an important support to innovative businesses. However, the process for claiming the relief is becoming more complex and we expect higher levels of scrutiny of claims, notably in high-risk sectors.
“HMRC plans to merge the two current R&D schemes into one, based on the existing RDEC scheme from April 2024. The proposals for the merged scheme, as currently drafted, will mean that smaller companies see a further reduction in the benefit they get from R&D relief claims unless they qualify as ‘R&D intensive’ and yet more complexity is introduced into the regime. Further details of the merged scheme may be published at the Autumn Statement including, we hope, a delay in the implementation date.”
HMRC also published its latest figures for relief claimed under the Patent Box scheme. In the tax year 2021 to 2022, 1,510 companies claimed relief under this scheme, slightly down on the 1,610 companies who claimed in the previous year. However, the total value of relief claimed went up to £1.4bn, a 14% rise on the previous year, driven primarily by large companies claiming a higher average tax relief.
ENDS
Accountancy and business advisory firm BDO LLP provides integrated advice and solutions to help businesses navigate a changing world.
The organisations we work with are Britain’s economic engine –entrepreneurially-spirited, high-growth businesses that fuel the economy.
We understand the ambitions and entrepreneurial mindset of those we work with and have the global reach, integrity and expertise to help people and businesses succeed.
BDO LLP
BDO LLP operates in 17 offices across the UK, employing 7,500 people offering tax, audit and assurance, and a range of advisory services. BDO LLP is the UK member firm of the BDO international network.
BDO’s global network
The BDO global network provides business advisory services in 164 countries and territories, with 111,300 people working out of 1,803 offices worldwide. It has revenues of US$12.8bn.
Email: frank.x.shepherd@bdo.co.uk
Tel: 07812 463601
Taken together, the estimated amount of total Research and Development (R&D) tax relief claimed for the tax year 2021 to 2022 was £7.6bn, an 11% increase from the previous year. This corresponds to £44.1 bn of R&D expenditure, 8% higher than in the previous year.
While the figures show a slight increase in the numbers of SMEs claiming tax relief and a 14% increase in total support claimed under the SME scheme, the figures may represent the high watermark for such claims, amid efforts to clamp down on fraud and error in the system and improve value for money for taxpayers.
The new figures for 2021-22 follow the publication of a recent shock report which highlighted the high prevalence of error and fraud in R&D claims.
HMRC’s analysis of R&D claims in 2020-21 published in July this year estimated that almost a quarter (24.4%) of claims by value in the SME scheme and 3.6% of claims in the RDEC scheme were either incorrect or fraudulent – with a combined cost to the Exchequer of an estimated £1.13bn.
To address these issues, HMRC has put in place a programme of educational activity focused on the areas of highest risk. It has also doubled the number of people working in R&D compliance over the last three years, adding an extra 300 staff to tackle non-compliance. In July 2022, it created a new Anti-Abuse Unit to tackle incorrect claims and open enquiries into the most complex cases.
In April 2023, the government reduced the rate of relief for the SME scheme and in August 2023, new rules came into force requiring each claim to be accompanied by additional information so HMRC can better identify and target higher risk claims.
Carrie Rutland, Head of Innovation Incentives Policy at BDO said:
“HMRC has been rightly concerned about error, fraud and ‘boundary pushing’ when it comes to R&D tax relief and has introduced a number of measures to clamp down on non-compliance.
“However, many of these measures were not in force in 2021-22, so there may be a time lag before we see their impact on the numbers of claims and the amounts of relief paid out.
“While the direction of travel suggests that we may see a decline in the number of claims in the future, R&D relief will continue to be an important support to innovative businesses. However, the process for claiming the relief is becoming more complex and we expect higher levels of scrutiny of claims, notably in high-risk sectors.
“HMRC plans to merge the two current R&D schemes into one, based on the existing RDEC scheme from April 2024. The proposals for the merged scheme, as currently drafted, will mean that smaller companies see a further reduction in the benefit they get from R&D relief claims unless they qualify as ‘R&D intensive’ and yet more complexity is introduced into the regime. Further details of the merged scheme may be published at the Autumn Statement including, we hope, a delay in the implementation date.”
HMRC also published its latest figures for relief claimed under the Patent Box scheme. In the tax year 2021 to 2022, 1,510 companies claimed relief under this scheme, slightly down on the 1,610 companies who claimed in the previous year. However, the total value of relief claimed went up to £1.4bn, a 14% rise on the previous year, driven primarily by large companies claiming a higher average tax relief.
ENDS
Notes to editors
About BDOAccountancy and business advisory firm BDO LLP provides integrated advice and solutions to help businesses navigate a changing world.
The organisations we work with are Britain’s economic engine –entrepreneurially-spirited, high-growth businesses that fuel the economy.
We understand the ambitions and entrepreneurial mindset of those we work with and have the global reach, integrity and expertise to help people and businesses succeed.
BDO LLP
BDO LLP operates in 17 offices across the UK, employing 7,500 people offering tax, audit and assurance, and a range of advisory services. BDO LLP is the UK member firm of the BDO international network.
BDO’s global network
The BDO global network provides business advisory services in 164 countries and territories, with 111,300 people working out of 1,803 offices worldwide. It has revenues of US$12.8bn.
Contacts
Frank ShepherdEmail: frank.x.shepherd@bdo.co.uk
Tel: 07812 463601