Commenting on HMRC’s annual Research and Development Tax Credit Statistics 2021, Jenny Tragner, director at the UK’s R&D tax credit consultancy ForrestBrown and a member of HMRCs R&D Consultative Committee said, “Today’s figures, which provide data for accounting periods up to 2019/20, highlight the huge cost increase the government faces for R&D incentives. £7.4bn of relief was awarded in 2019/20, 19% up on the previous year.

“This data relates to a pre-Covid period, and in the past 18 months HMRC has substantially tightened its approach to compliance. They are under pressure from HM Treasury to reduce fraud and errors in claims, but today’s statistics explain this change in approach and their focus on cost-cutting measures.

“The increase in cost is being driven primarily by SMEs, who make up 89% of all claims made. The average SME claim for 2019/20 is £57,330, up 7% on last year, whereas the average RDEC claim is more stable at £317,829, only a 0.5% increase on last year.

“We predict that the SME scheme is now a clear target for reform as part of the government’s current review into R&D tax relief. Any changes should prioritise simplicity and a good start would be combining the schemes onto the RDEC model as well as introducing a modernised definition for R&D. This would allow HMRC to better target its compliance activities.”