This is according to new analysis of Government statistics by tax services and software provider Ryan, which calculated a nearly 13% increase in R&D spending between 2020/21 and 2021/22.
Captured from HMRC data collected on the number of R&D claims made by food and manufacturing firms each financial year, innovation spending was up 12.7% in 2021/22 and totalled £800m. This is compared to 2020/21, when total R&D investment from across the industry reached £710m.
While the total value of investment rose, the number of claims decreased by 1.4% year-on-year, from 2,095 in 2020/21 to 2,065 a year later. A total of £120m in R&D tax relief claims were made by food and drink manufacturers in 2021/22, with the average claim coming in at £58,111.
The rest of the UK increased R&D spending by 8% between 2020/21 and 2021/22, with a total of £44.1bn being spent overall. However, there was a decrease in the number of businesses claiming R&D tax relief for the first time, the second year in a row this has been the case.
Food and drink firms are ‘incredibly innovative’
The director for research and development at Ryan, Nigel Holmes, praised businesses within food and drink manufacturing for their desire to remain “incredibly innovative” in spite of rising costs.
“The sector is taking great strides to develop new technologies to produce innovative and novel products to meet market demands and improve sustainability in the industry,” he added.
Speaking to the reduction in the number of claims overall, Holmes urged HMRC not to deter firms that are unsure about making a claim.
Holmes explained: "While it is great to see year-on-year increases in innovation spending, it is vital for the UK economy that this does not go into reverse gear. It is therefore concerning to see that the number of overall claimants for R&D tax relief has fallen for the second year running. This suggests that some companies may be nervous about claiming as a result of HMRC’s recent crackdown on fraud and error.
"While it is important for the credibility and robustness of the scheme that fraud and error are eliminated, HMRC’s approach may be starting to have a chilling effect on businesses. There is a risk that if companies do not feel it is worth claiming because they are nervous about the response from HMRC, they may be deterred from innovation altogether."
In July 2023, a report by Research and Development Specialists revealed that SMEs within the food sector could be missing out on thousands of pounds in tax relief, due to the relatively small number of claims made compared to other sectors.
