The latest statistics showing the value of R&D tax relief and Patent Box were published by HMRC today. What does an initial look at this year’s numbers tell us?
HMRC stats 2022 – the headlines
The total value of R&D tax relief for 2020-2021 is now projected to be nearly £6.6bn. The value of Patent Box relief is projected at £1.2 bn. These are very large numbers by any measure.
The number of R&D claimants continues to grow. However, the projected value of R&D tax relief claims for 2020-21 has fallen on the previous year for the first time ever this year. The meteoric rise in the costs of the R&D scheme has attracted national attention in recent years resulting in a considerable body of work to help contain those costs. What these stats now tell us is that firstly, the projected costs of the R&D schemes have come down, and more importantly, the projected values of the 2019-2020 claims were actually £600m overstated. This does not seem an acceptable tolerance and has the risk of putting the spotlight in the wrong place.
The number of companies claiming under the Patent Box scheme has grown but the amount claimed has stayed largely static for the second year in a row.
Fewer first time R&D scheme applicants
There has been a drop in the number of first-time applicants from 19,720 for 2019-20, down to 18,925 projected for 2020-21. We would probably expect a further decrease in future years. This is an indication of the maturity of the R&D schemes, businesses are by now familiar with their eligibility for the schemes and have continued to enjoy the benefits.
Certainly, we have fewer conversations with businesses these days about the nuts and bolts of the R&D schemes and whether they are eligible. Most of our potential clients are looking to optimise their current claims and ensure that their R&D claims are fully compliant and robust. As well as wanting to know more about their potential for Patent Box relief.
More of the smallest value R&D claims
When we look at the numbers for claims under £50k from 2020 to 2021, we see an increase in the number of claims from 55,230 to 58,355. But the amount of relief claimed has reduced from 905 to 880.
This could be that the R&D message has filtered through to even the smallest SMEs which would be fantastic news. However, are we getting bang for our buck in £880m? This could be a logistical problem for HMRC to police and has the potential for fraudulent claims or errors both from the claimants and their low-cost, low-value “advisors”. Poor compliance shouldn’t be allowed to sneak through just because of smaller claim values.
Have we seen a covid effect in the numbers?
I suppose the most significant and obvious Covid effect is that the projected cost of the R&D tax relief schemes paid for 2020-21 has fallen on the previous year. It implies that some, but not all, R&D activity continued throughout the first year of the pandemic and that the pandemic necessitated R&D as companies looked for solutions to global problems and new ways of working through lockdown.
It may be that there will be more of an impact in 2021-22 as companies continue to recover from Covid and face other challenging economic conditions. Could it be that we are on a crest of wave and we will look back at this year as the turning point when qualifying R&D expenditure starts to consistently fall in the UK.
How does the R&D link to through to the Patent Box scheme?
I still feel concerned about the stark contrast in value and uptake between the R&D and Patent Box schemes. Seeing R&D, which has qualified for tax relief, turn into IP and resulting in Patents and Patent Box should be seen as critical to ensure long-term compliance and payback on the government’s investment.
I continue to worry that Patent Box is being forgotten. This should be considered as the same pot of incentives but the definitions between the schemes are inconsistent, making it difficult to view them holistically.
