New official statistics from HM Revenue and Customs (HMRC)paint a picture of a Research and Development (R&D) tax credits system in the midst of a significant transformation. The provisional data for the 2023-24 tax year show that while total support provided to businesses held steady at£7.6 billion, profound shifts occurred beneath the surface, driven by major government reforms and HMRC efforts.

This marks the first year the statistics reflect changes to relief rates announced in 2022, revealing a dramatic swing from the traditional SME-dominated scheme towards the credit designed for larger companies.

Parallel lives

The most striking change is the reversal in the distribution of relief. The total amount of support claimed fell only slightly by 2% from the previous year’s £7.7 billion. However, this modest overall change masks are balancing between the two main schemes.

The amount of relief claimed through the Small and Medium-sized Enterprise (SME) scheme fell sharply by 29% to £3.15 billion. Conversely, the value of claims made under the Research and Development Expenditure Credit (RDEC) scheme, typically used by larger companies, increased by 36% to £4.41 billion, making it the first time the RDEC scheme has accounted for a larger share of the total relief than the SME scheme.

This shift is a direct consequence of the rate changes implemented in April 2023. For SMEs, the enhancement rate for qualifying expenditure was reduced from 130% to 86% and the payable credit rate for loss-makers fell from 14.5% to 10%. Meanwhile, the RDEC credit rate was increased from 13% to 20%, making it more generous for the companies that claim it.

Fewer claims but larger on average

The provisional number of claims also saw a sharp decline, dropping by 26% to 46,950. The decrease was far more pronounced in the SME scheme, which saw a 31% fall in claim volume compared to just a 5% drop in RDEC claims.

This decline in volume, however, did not translate into a proportionate drop in the total value of relief. This is explained by a change in the profile of claimants. The data show a larger drop in the number of claims for smaller amounts of relief (up to £15,000) compared to larger claims(above £250,000), resulting in a 33% increase in the average claim value year on year.

The statistics also suggest that administrative changes, particularly the mandatory Additional Information Form (AIF) introduced for all claims from August 2023, may have deterred some smaller claimants. In addition, the increased generosity of the RDEC scheme, which typically features higher-value claims, has buoyed the overall relief amount.

Disproportionate impact on smaller firms and smaller claims

The reduction in smaller claims signals that the state's necessary war on fraud and error may be inadvertently sacrificing the scheme's accessibility – and with it, a significant portion of the UK's future innovative potential.

The most troubling implication lies in the drop in smaller claims, suggesting the scheme's original purpose, incentivising innovation across the entire economy, is being eroded. For small and micro-entities, the scheme may be moving beyond reach not because their R&D efforts are any less genuine but because the compliance burden has become insurmountable.

The increasing complexity of the scheme, as well as the risk of a lengthy enquiry, has rendered the process prohibitively costly and risky. Where a £20,000 claim was once a vital cash injection, it is now a potential liability if it triggers a six-to-twelve-month compliance check requiring many thousands of pounds in accountancy or consultancy fees to defend, as well as time from the claimant company.

This, then, risks the situation, and some in the industry claim it is already happening, where only larger, well-resourced companies can confidently navigate the new landscape. The scheme risks becoming a subsidy for the innovation of established and larger players while starving the agile, disruptive start-ups it was designed to foster. It marks a reversal of the scheme’s once democratised nature.

Regional and sectoral concentrations hold firm

Despite the upheaval, and to nobody’s surprise, the geographic and industrial distribution of R&D claims remained consistent with historical trends.

Companies with registered offices in London and the South East continued to dominate, accounting for 24% and 15% of all claims and 31%and 20% of the total amount claimed respectively. The East of England was the third most significant region.

Similarly, three key sectors continued to be the driving force - Information and Communication, Manufacturing and Professional and Scientific and Technical sectors together accounted for 72% of all claims and71% of the total amount of relief claimed.

Support for R&D-intensive SMEs begins

The 2023-24 data also provide the first glimpse of the government’s enhanced support for R&D-intensive SMEs. This measure allows loss-making SMEs that spend at least 40% of their total expenditure on R&D to claim a more generous payable credit of 14.5%, just under 4,000 claims were from companies qualifying as R&D-intensive.

Looking ahead: a merged system

The reforms are not over. For accounting periods beginning on or after 1 April 2024, the two existing schemes have been merged into a single simplified RDEC-like scheme for most companies. Alongside this, a more generous scheme for R&D-intensive SMEs (with the intensity threshold lowered to 30%) has been introduced, known as Enhanced R&D Intensive Support (ERIS).

These latest changes are not reflected in the 2023-24statistics and will be featured for the first time in the 2026 publication, which will cover the 2024-25 tax year.

Conclusion

The September 2025 R&D tax credits statistics reveal a system in flux. The government’s policy to rebalance the relief towards the RDEC scheme has had an immediate and substantial impact, shifting the financial support away from SMEs and towards larger companies. While the overall cost to the state remains significant, the landscape for innovative companies has fundamentally changed. The decline in claimant numbers, particularly among smaller businesses, will be a key area for policymakers to watch as the next wave of reforms to the merged scheme takes effect.

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