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R&D tax credits claims fall in value

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R&D tax credits claims by businesses fell by £275m in 2020/21, the first time claims have fallen since the R&D tax credits schemes began in 2000. Highlighting the figures, UHY Hacker Young says that the drop has been caused ‘by HMRC becoming stricter in approving claims for R&D tax credits following a rise in suspected fraud in 2020’.

The fall in qualifying expenditure risks UK businesses falling behind in terms of productivity and driving innovation and growth, says the firm. The UK spent 1.7% of GDP on R&D in 2019, behind the EU average (2.1% in 2020) and further trailing South Korea (4.6%), Japan (3.2%) and the US (3.2%).

Phil Kinzett-Evans, tax partner at UHY Ross Brooke said: ‘HMRC is right to want to clamp down on error and fraud in R&D tax credit expenditure, but the risk of scrutinising too many applications too closely is harming internal investment in innovation in UK business and ultimately therefore innovation itself, in a highly competitive global market, where the UK stands to lose out significantly.’

Recent HMRC statistics show that, although R&D expenditure was down on the previous year, the estimated total number of tax credit claims increased by 7%. This means there were more claims, but with a lower average value. HMRC suggests this could reflect the impact of the Covid-19 pandemic which restricted companies’ ability to carry out normal levels of R&D activity. The statistics also show a concentration of claims by companies registered in London and the south east of England, and particularly by those in the information/communication, manufacturing, and professional/scientific/technical industry sectors.

Issue: 1597
Categories: News
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