R&D tax relief changes risk discouraging genuine innovation
The number of first time applicants for Small and Medium-Sized Enterprises (SME) Research and Development (R&D) tax relief dropped by 45% in just one year, reinforcing concerns from the Association of Taxation Technicians (ATT) that efforts to tackle fraud may be discouraging genuine claimants.
Recently released HMRC figures1 show that the number of first-time applicants for the SME R&D scheme dropped to 7,230 in 2022/23 - the latest year for which full data is available - down from more than 13,000 the previous year.
This decline came before major reforms to the R&D regime took effect and likely reflects the impact of HMRC’s increased compliance activity. While some fraudulent activity will have been deterred, the ATT warns that complexity and cost may also be preventing genuine claimants from accessing the relief.
Statistics for 2023–24 estimate the total number of R&D tax relief claims to be 46,950, a decrease of 26% from the previous year. Smaller claims are likely to see the sharpest decline, particularly those worth £15,000 or less, while larger claims have held up more strongly.
Jon Stride, chair of the ATT’s Technical Steering Group, said:
“HMRC appear to view the reduction in claims as evidence that fraud and error are falling. But in reality, it’s likely a mix of factors — including genuine claimants walking away, either because of complexity or because they lack the resources to defend a claim under enquiry.
“HMRC do not record why claims are abandoned, so it is often assumed that the claim was invalid — but that’s not necessarily the case. Some of the drop will be due to smaller companies no longer finding it worthwhile to continue fighting a claim. If that's the case, are we unintentionally disincentivising smaller-scale R&D – the kind that could grow into something much bigger with the right support?
“It is also worth bearing in mind that the most recent data for first-time applications is for the 2022–23 year, before the changes to rates and schemes were introduced. It will be interesting to see how the figures for 2023–24 and 2024–25 compare.”
The ATT warns that without greater stability and support for small businesses, R&D tax relief could become less accessible to the very companies it was designed to help — early-stage, innovative firms that often lack the resources to navigate a fast-changing and increasingly complex system.
It has called for the R&D regime to be given time to stabilise, noting that the volume of changes introduced over such a short period has already made it difficult to assess which measures have been effective.
Jon Stride added:
“The drop in R&D claims is likely to reflect a combination of factors: recent and frequent changes to the R&D schemes, and a tougher compliance stance aimed at reducing fraud.
“It’s difficult to assess whether any single measure is working when policy changes are being made in rapid succession. A more stable approach would allow time to properly evaluate the impact.
The availability of R&D credits should encourage a culture of innovation. The application process and potential scrutiny should not act as a disincentive - especially given the benefits for the economy of a vibrant culture of creativity."
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