The number of small or medium-sized firms claiming research and development (R&D) tax credits has dropped by 23 per cent in a year.

The latest statistics from HM Revenue and Customs (HMRC) have revealed this decrease, attributing it partly to changes in the way claims are administered.

These changes require businesses to submit much more information than was previously needed, as part of HMRC’s campaign to identify malpractice.

The provisional estimated total number of R&D tax credit claims for the tax year 2022 to 2023 was 65,690, a decrease of 21 per cent from the previous year.

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Heather Williams, tax partner at accountancy firm Azets, has welcomed the administrative changes (Image: Azets) There were 55,325 SME scheme claims and 10,365 RDEC scheme claims.

Heather Williams, tax partner at UK top 10 accountancy firm Azets, which has offices in Hampshire, said: "This large fall in SME claims can be put down in part to the implementation of the additional information form (AIF) for claims made after August 8, 2023.

"Allowable only in a digital format, this includes breaking the costs down across qualifying categories, listing projects and providing a detailed description of the R&D, as well as describing what advances in scientific or technical knowledge the R&D is hoping to achieve."

She added: "We welcome these administrative changes as a significant way of weeding out fraudulent claims and ensuring that malpractice is minimised by improving compliance in a poorly regulated market."

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The latest available HMRC figures show the estimated cost of fraud and error in the scheme to be more than £4.1bn from 2020-21 to 2023-24.

HMRC also says fraud and errors in R&D tax credits claims decreased from 4.9 per cent to 3.6 per cent due to the implementation of digital submission mandates, AIF requirements and increased scrutiny.

Heather has written to Chancellor Rachel Reeves ahead of the Wednesday, October 30 Budget on behalf of clients, presenting key proposals to simplify and strengthen the current R&D tax relief scheme.

She said: "The UK’s R&D tax relief system plays a crucial role in encouraging innovation, particularly for small and medium-sized enterprises (SMEs).

"However, there are growing challenges around complexity, uncertainty, and clawbacks that highlight the need for reform within the current system – reforms which could help ensure that R&D tax relief continues to support innovation effectively."