Twice a year HMRC releases their latest stats about the R&D relief schemes, with September’s release showing continued growth in the SME Scheme. In addition, HMRC reported a 7% increase in the number of companies claiming to 89,300 for 2020/21, which will continue to climb as claims can still be submitted for this period. What’s more, the Office for National Statistics (ONS) are conducting a review of the information they release regarding R&D work carried out and claim values.

The Statistics

The ONS have previously always posted a lower estimate of R&D work carried out compared to the claim value through the HMRC R&D tax relief schemes.

For example, 2019/20, the last year’s data reads as:

• HMRC R&D eligible costs utilised across SME and RDEC – £42.8 billion
• ONS R&D expenditure estimate – £26.0 billion

That is a massive £16.8 billion difference which has raised a series of questions. First, who was right and secondly, if the ONS was right it would pass doubt on the effectiveness of HMRC to controlling legitimate spending on the tax relief schemes.

HMRC’s numbers are based on actual R&D claims put forward, though how much of that is fraudulent or boundary-pushing is not known. Although, estimates do go as high as 10%, hence why they are carrying out more enquiries on claims.

The ONS’s estimates are built using different methods and although not expected to align exactly, would be expected to be closer between the two. They have been completing some work on examining the increased role SMEs play in contributing to R&D.

As a result of further analysis and changes in methods to construct this data, the ONS’s figures for 2019/20 are now an R&D estimate of £41.6 billion.

Why does this matter? 

It gives credibility to the R&D tax relief schemes that the companies and actual funds that are supporting R&D are maybe more accurate than thought.

This in turn supports the idea that these reliefs are an important strategy of the government to encourage overall 2.4% of R&D as a percentage of GDP.

The previous estimate is that the UK is achieving 1.7%, though this figure may well be revised.

Get in Touch

If you need any assistance understanding how this may affect your R&D Tax Credit claims, get in contact with TBAT Innovation. To begin a claim, you can also use their online R&D Tax Credit calculator to work out how much you could receive from HMRC.