The main takeaway from these new statistics is the 10% decrease in the average claim value. This may be due to the impact of the COVID-19 pandemic, which could have reduced the normal level of R&D activity. The figures should all be viewed with the slight warning that claims for the period being looked at can still be made until the the end of the 2022-2023 tax year.
A slightly surprising statistic is that while the average claim value dropped the number of claims increased by 7% driven by the rise in SME claims to 78,825.
The provisional estimate on the amount of Research and Development tax relief support, the cost of the schemes, is £6.6 billion a decrease of 4% from the prior year.
Further details on the statistics can be found here: Research and Development Tax Credits Statistics: September 2022 – GOV.UK (www.gov.uk)
Statistics and statistical methodology are clearly not normally that interestingly. But importantly a statistical divergence between the ONS survey number (Companies fill out survey forms) on R&D and the HMRC numbers based on claims is being addressed. This is important when analysing UK R&D more broadly. The ONS numbers have normally shown less R&D expenditure than the HMRC numbers imply.
A full blog on this change can be found here: Comparison of ONS business enterprise research and development statistics with HMRC research and development tax credit statistics – Office for National Statistics
Two areas are of particular interest:
- The ONS surveys underrepresenting small businesses. This comes as no shock to me. A big concern has always existed that large companies are better organised, and lobby more effectively. The fact that the statistics have been skewed to large companies as well is as disappointing as it is predictable. Hopefully, the numbers will be more representative in the future.
- Error and fraud in tax credit statistics. This has been a big area of concern with some high profile frauds identified, and both legislated changes and approaching changes made to the R&D schemes. “HMRC estimates that 4.9% of the overall estimated cost to the Exchequer of R&D tax reliefs is attributable to error and fraud, with a level of 7.3% for businesses claiming under the SME scheme and 1.1% among businesses claiming Research and Development Expenditure Credit (RDEC) relief.“. I hope the anti fraud steps being taken reduce fraud.
My next blog will look at fraud and errors in R&D claims in greater detail.
Christopher Toms – Director RandDTax.