Why There is a Decline in R&D Tax Relief Claims by South West SMEs

Published by Nida Umair posted in Research And Development (R&D) on November 19, 2025

Research and Development (R&D) tax relief has long been an essential resource for businesses in the UK, providing financial support to companies investing in innovation. However, recent reports show a worrying trend: a significant decline in the number of small and medium-sized enterprises (SMEs) in the South West of England claiming this relief.

According to the latest figures from HMRC, there has been a £50m drop in claims from South West SMEs in the 2023-24 period. This article explores the reasons behind the decline and why businesses should continue to take advantage of R&D tax relief.

The Decline in R&D Tax Claims in South West England

In the tax year 2023-24, South West SMEs made 2,780 claims, a drop from 4,055 claims in the previous year. The total amount of tax relief claimed also fell from £245m to £195m. The decline in R&D tax claims in South West England has been seen across various regions:

  • Cornwall & Isles of Scilly: 220 claims (down from 330)
  • Devon: 420 claims (down from 665)
  • Gloucestershire & Wiltshire: 710 claims (down from 1,050)
  • North Somerset, Somerset, and Dorset: 780 claims (down from 1,115)
  • West of England: 650 claims (down from 895)

This decrease is concerning for both businesses and the wider regional economy. R&D tax relief plays a crucial role in encouraging businesses to innovate, leading to the development of new products, services, and processes that benefit both the companies themselves and the local economy.

Why Are South West SMEs Avoiding R&D Tax Relief?

Several factors have contributed to the decline in claims.

  1. Increased Compliance Requirements: Recent changes in the application process have made it more difficult for SMEs to navigate the system. The tightening of rules has led to concerns over the time and cost involved in making a claim.
  2. Reduced Benefits for SMEs: The government has reduced the rate of tax relief available for SMEs. This has disincentivised smaller companies from claiming the relief.
  3. Concerns Over False Claims: Following a crackdown on fraudulent claims, businesses may be hesitant to apply for fear of being caught up in compliance checks, even when their claims are legitimate.

The Importance of R&D Tax Relief for SMEs

R&D tax relief can provide up to £27 for every £100 spent on qualifying R&D activities. For SMEs, this relief can make a substantial difference to cash flow, helping them to reinvest in innovation. Some benefits of R&D tax relief include:

  • Increased innovation capacity: With additional funding, businesses can invest in developing new products, services, or processes.
  • Financial support for high-risk projects: R&D often involves high costs and risks, and the relief can help offset these.
  • Encouragement for growth: As businesses innovate, they generate new revenue streams, which may lead to higher tax receipts in the long term.

The Role of Larger Companies and RDEC

Although SMEs have seen a decline in claims, the larger R&D Expenditure Credit (RDEC) scheme for bigger companies has seen a growth in claims, with the total relief amount rising by 36%. This shift has raised concerns about the growing disparity in R&D tax relief claims between SMEs and larger firms. SMEs, which make up nearly 99% of UK businesses, must be given the tools and support to continue benefiting from this crucial tax relief.

Why SMEs Should Continue Claiming R&D Tax Relief

Innovation is the backbone of any successful business. While the process of claiming R&D tax relief for SMEs can be complex, businesses should not shy away from this valuable support. Here’s why:

  • Innovative businesses fuel economic growth: Successful innovations create new products and services, expanding business opportunities and improving the economy.
  • Avoid losing out: The reduced compliance burden is temporary. Government efforts are underway to simplify the process.
  • Long-term financial benefits: The short-term administrative effort is outweighed by the long-term benefits of innovation.

How Apex Accountants Can Help South West SMEs With R&D Tax Relief Claims

At Apex Accountants, we specialise in helping businesses navigate the complexities of R&D tax relief claims. Our team of experts provides tailored advice and support to ensure your R&D tax claims are accurate and compliant. Whether you’re a small business in the South West or a larger firm across the UK, we are here to guide you through the process, helping you maximise the tax relief available to your business.

  • R&D Tax Relief Claims: We assist with identifying qualifying R&D activities, preparing claims, and managing compliance.
  • Tax Planning: We provide strategic tax planning advice to help you reduce your tax liabilities while supporting innovation.
  • Compliance Support: Our experts ensure that your claims meet all HMRC requirements, reducing the risk of an audit.

Conclusion

The decline in R&D tax relief claims by SMEs in the South West is a troubling development that may hinder innovation and growth. However, businesses can still benefit from this valuable support if they understand the process and take the necessary steps to comply with the new rules. At Apex Accountants, we are committed to helping you unlock the full potential of R&D tax relief, ensuring your business stays competitive in an ever-evolving market.If you’re unsure about your eligibility or need help with your claim, contact Apex Accountants today for expert guidance.

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