Use it or lose it – sharp decline in R&D tax relief claims by SMEs
There has been a marked fall in the number of SMEs in Yorkshire and Humber making research and development (R&D) tax relief claims, according to UK top 10 accountancy and advisory firm Azets.
The drop has prompted a specialist at the firm in Yorkshire to warn that local businesses should use the valuable tax relief support – or lose it.
Steve Holmes, a tax advisory partner with UK top 10 accountancy and advisory firm Azets, covering Yorkshire and Humber, issued the warning after analysing latest HMRC figures for 2023-24, with the previous tax year’s data in brackets for comparison.
There were 2,490 claims (3,745) in Yorkshire and The Humber, with a total cost of £145m (£215m). East Yorkshire and Northern Lincolnshire made 360 (570), North Yorkshire 420 (655, South Yorkshire 550 (855) and West Yorkshire 1,155 (1,665).
Manufacturing led Yorkshire and The Humber with 935 claims (1,220), followed by information and communication at 435 (635) and professional, scientific and technical at 345 (480).
Steve, who works from Azets’ Leeds office in King Street, said: “We are finding that the reducing benefit for SMEs, latest compliance rules and relatively high time and cost investment to make an R&D claim is discouraging SMEs, in particular smaller SMEs.
“The decrease is concerning because the funding helps encourage businesses to develop new technologies which in turn benefit the regional economy.
“Innovation costs are considerable, yet successful innovation, whether a new product, service or process, can generate new revenues and additional tax which then offset the relief. Companies with genuine claims should not be put off.”
Steve Holmes, a tax advisory partner with UK top 10 accountancy and advisory firm Azets, covering Yorkshire and Humber.
Claims by SMEs – which account for nearly 99% of businesses in the UK – fell by nearly one-third compared to the previous tax year.
Just under 47,000 R&D tax credit claims for 2023-24 were made overall, a fall of just over a quarter.
Tax reliefs can be between £15 to £27 for every £100 spent on R&D, based on the government’s own figures.
Steve added: “The decrease, seen locally and across all the regions, is a crying shame because this kind of funding pays the people that help local businesses develop new and exciting technologies which in turn grow the regional and wider economy.
“Innovation costs considerable money – and a lot of innovation wouldn’t happen without taxpayer support because loss-making companies wouldn’t risk bankrolling further financial hits and profitable ones may fear being dragged into the red without recourse to public money to offset R&D outlay.
“Yet successful innovation can generate new revenues for businesses and create new taxes which more than cover what was put in by the taxpayer. Companies with genuine claims in Yorkshire should not be put off.
“Worryingly, the government’s figures show that SMEs aren’t making as many R&D tax credit claims, with a decrease of nearly one-third compared to the previous year, and this is undoubtedly a direct consequence of the latest compliance rules. Indeed, the number of claims last year for R&D tax credits by scheme overall was the lowest since 2016-17.”
The amount of tax relief claimed through the SME scheme in the UK fell by 29%, compared with the previous year, to £3.15 billion.
In comparison, claims for the larger companies’ RDEC scheme fell by 5%, although the amount of relief claimed rose by 36% to £4.41 billion.
According to HMRC, the provisional estimated amount of total R&D tax relief support claimed for 2023-24 was £7.6 billion, a decrease of 2% from the previous year and corresponding to £46.1 billion of R&D expenditure, which was 1% lower.
Regional allocation is based on the postcode of the company’s registered address, which might not correspond to where the R&D activity takes place.
HMRC states that it has included estimates for claims not yet received, with revisions expected in next year’s publication.
The information & communication, manufacturing and professional, scientific & technical sectors account for the greatest volume of claims, making up 72% of total claims and 71% of the total amount claimed.
Azets has three offices in Yorkshire, in Leeds, Bradford and York, where it employs 335 people.