SMEs behind rapid rise in Research & Development tax relief claims

More small and medium-sized businesses than ever are taking advantage of the landmark Research & Development (R&D) tax relief scheme, it has been revealed.

The initiative, launched in 2000/01, enables firms to claw back tax for every pound spent on innovation.

SMEs behind increase in claims

According to HM Revenue & Customs (HMRC), there were more than 85,900 R&D tax credit claims in the year ending March 2020 – the latest data available.

This represents an increase of 16 per cent compared to the previous year.

But while the largest of firms continue to make significant claims, it is small and medium-sized enterprises (SMEs) who are driving the uptick.

The data shows that SMEs made 76,225 claims in the 12 months to March 2020 – a 16 per cent rise compared to the previous year. This includes 38,050 claims for a deduction from Corporation Tax liability and 38,175 claims which include a payable tax credit.

Commenting on the figures, HMRC said: “The main drivers of growth are primarily through more SMEs making claims, representing 16 per cent growth within the SME scheme and 12 per cent growth within the RDEC scheme.

“This is likely due to the increased visibility of the schemes. In recent years there have been high volumes of claims from first time applicants in the SME scheme.”

Total value of claims and expenditure on the up

The total value of support claimed through the scheme, meanwhile, is estimated to be £7.4 billion, up 19 per cent, or around £1.1 billion, compared to the previous year. The total value is comprised of £4.4 billion through the SME scheme and £3.1 billion from the research and development expenditure credit (RDEC) scheme.

Total R&D expenditure has also increased, from around £40 billion in 2018/19 to £47.5 billion in 2019/20 – a rise of 15 per cent.

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