An initial insight into HMRC’s annual R&D tax credit statistics

What does an initial insight into this year’s numbers tell us?

It is important to mention that this data is provisional, due to the fact that claims for the period, which the statistics relate to, can still be made at present. However, from what has been released, a few key trends have been identified.

Number of claims and amount of relief claimed

The total number of R&D claims is estimated to be 89,300 – an increase of 7% from the previous year.
The provisional estimated amount of total R&D tax relief support claimed was £6.6billion – a decrease of 4% from the previous year. This corresponds to £38.1 billion of R&D expenditure, 11% lower than the previous year.

Figure 1: Number of claims for R&D tax credits by scheme

This is the first period in which the value of R&D tax relief has declined, however the number of businesses claiming has increased. These statistics fall into the period of COVID-19 during its peak, therefore one of the most significant and noticeable effects of the pandemic with regards to this information, is that the projected cost of the R&D tax relief schemes paid for 2020-21 has fallen on the previous year.

It implies that some, but not all, R&D activity continued during the first year of the pandemic and that the pandemic necessitated R&D, as businesses sought solutions to global challenges and new ways of working through lockdown.

It may be that there will be more of an impact in 2021-22 as companies continue to recover from COVID and face other challenging economic conditions.

Research and Development expenditure

The amount of qualifying R&D expenditure used to claim R&D tax relief is estimated to be £38.1 billion for the tax year 2020 to 2021, a decrease of 11% from the previous year (figure 2). Most of this expenditure (59%) was by companies claiming under the RDEC scheme.

The decrease in expenditure from the previous year is primarily from the RDEC scheme where expenditure by large companies and SMEs decreased by 20% and 5% respectively. As explained above, these figures are provisional and will be revised next year, which could result in large changes.

Figure 2: R&D expenditure used to claim R&D tax credits by scheme

First time applicants

In the tax year 2019 to 2020, there was a 4% decrease in the overall number of first-time applicants from the previous year. This is the first decrease in the number of first-time applicants since the tax year 2009 to 2010. This decrease is driven by a reduction in the number of first-time applicants within the SME scheme.

For the tax year 2019 to 2020, the number of first-time applicants in the SME scheme was 16,595, a decrease of 7% from the previous year. This is the first time in 14 years that there has not been growth in the number of first-time applicants in the SME scheme.

It could be argued that this is an indication of the maturity of the R&D schemes, as businesses are now familiar with their eligibility for the schemes and have continued to enjoy the benefits.

The number of first-time applicants for the RDEC scheme was 2,330 for the tax year 2019 to 2020; a 19% increase from the previous year.

This is unusual - generally, since the introduction of RDEC, first-time applicant growth for the SME scheme has been stronger than for RDEC. However, SME first-time claimants make up a majority of all R&D tax relief claimants.