Companies registered in London and the South East are claiming almost half of the £8.2bn in research and development tax relief in 2024-25, according to HMRC statistics published on 29 September, prompting R&D software company innoscripta to suggest higher levels of relief for R&D staff based elsewhere.
Companies with registered offices in London accounted for 30 per cent of the amount claimed and those in the South East 19 per cent, a combined 49 per cent, HMRC figures show. By number of claims, London makes up 24 per cent and the South East 15 per cent.
The East of England ranked third, with 14 per cent of the amount claimed and 10 per cent of claims, according to HMRC. These three areas together account for 63 percent of the value of relief claimed.
HMRC assigns claims to the area where each company uses its registered office, and the publication notes that the location of its registered office may not be where all R&D activities take place. The actual regional distribution of R&D work may differ from published figures.
innoscripta said the pattern is in line with the new year and that statistics remain the clearest guide available for where relief lands. The company notes that the level of relief is the same wherever a business employs its staff, so the current system does not provide financial incentives to locate R&D in one part of the country over another.
HMRC estimated eligible R&D costs at £51bn in 2024-25, up 7 per cent on the previous year, and said total relief claimed was up 5 per cent from £7.8bn. The number of claims fell by 17 per cent to 40,325, as HMRC’s latest figures show a sharper drop in claims from SMEs alongside an increase in the number of claims from large companies. HMRC figures for the latest year are provisional.
Josh Perry, head of UK and Ireland sales at innoscripta, said: “These numbers raise questions worth debating. A higher level for R&D staff outside London and the South East will change the maths for companies to decide where to hire the next team. Engineers in Derby, for example, can attract more relief than one in central London, and that can help bring more R&D work to other countries.”
innoscripta said location-based rates could give employers in the region a stronger case when competing with London firms for the same talent. Because the published figures depend on registered addresses, the company said, it may underestimate the R&D being done in the area, which it described as one of the reasons better location data would be useful for policymakers.
Perry added: “The role of R&D is a skilled job, and more in a region brings benefits that go beyond the companies that do the hiring, through local spending and the supply chain. With regional growth high on the political agenda, R&D tax relief is a lever that the government already has.”
The idea has come up before. In May, a report commissioned by the Manchester Sister innovation district recommended sending R&D tax incentives to regional authorities, along with regional investment funds.
innoscripta says any version of the policy will depend on how the location is recorded. Businesses with teams in multiple locations need to share where everyone works and what projects they are working on.
“Location-based rates only work if the data behind them is reliable, and HMRC needs confidence in the records,” Perry said. “Hybrid and remote work complicates the picture, so the definition of where people work must be resolved from the beginning. Any changes must also be simple enough for small businesses to use, which means that the documentation required must match the claim.
He said: “Records compiled at the end of the year from interviews and spreadsheets will struggle to show where the work is happening. A platform that captures R&D activity and staff time when work is completed gives businesses and HMRC a consistent record, whatever the policy.