Companies registered in London and the South East claimed almost half of the £8.2bn of research and development tax relief in 2024-25, according to HMRC statistics published on 29 September, prompting R&D software company innoscripta to suggest a higher rate of relief for R&D staff based elsewhere.
Firms with registered offices in London accounted for 30 per cent of the amount claimed and those in the South East for 19 per cent, a combined 49 per cent, the HMRC figures show. By number of claims, London made 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. The three regions together accounted for 63 per cent of the value of relief claimed.
HMRC assigns claims to regions using each company’s registered office, and its publication notes that the registered office location may not be where all the R&D activity takes place. The true regional distribution of R&D work could therefore differ from the published figures.
innoscripta said the pattern was in line with recent years and that the statistics remained the clearest available guide to where relief lands. The company noted that the rate of relief is the same wherever a business employs its staff, so the current system offers no financial incentive to locate R&D in one part of the country rather than another.
HMRC estimated qualifying R&D expenditure at £51bn in 2024-25, up 7 per cent on the previous year, and said total relief claimed rose 5 per cent from £7.8bn. The number of claims fell 17 per cent to 40,325, as HMRC’s latest figures showed a sharper drop in SME claims alongside a rise in the number of claims from large companies. HMRC’s figures for the latest year are provisional.
Josh Perry, head of sales UK and Ireland at innoscripta, said: “The figures raise a question worth debating. A higher rate for R&D staff outside London and the South East would change the maths for a company deciding where to hire its next team. An engineer in Derby, for example, could attract more relief than one in central London, and that could help bring more R&D work to more parts of the country.”
innoscripta argued that a location-based rate could give employers in the regions a stronger case when competing with London firms for the same talent. Because the published figures rely on registered addresses, the company said, they may understate the R&D carried out in the regions, which it described as one reason better location data would be useful to policymakers.
Perry added: “R&D roles are skilled jobs, and more of them in a region brings benefits well beyond the companies doing the hiring, through local spending and supply chains. With regional growth high on the political agenda, R&D tax relief is a lever the government already has.”
The idea has surfaced before. In May, a report commissioned by Manchester innovation district Sister recommended devolving R&D tax incentives to regional authorities, alongside regional investment funds.
innoscripta said any version of the policy would depend on how location is recorded. A business with teams in several places would need to show where each person works and which projects they spend their time on.
“A location-based rate only works if the data behind it is reliable, and HMRC would need confidence in those records,” Perry said. “Hybrid and remote working complicates the picture, so the definition of where someone works would have to be settled from the start. Any change would also need to be simple enough for smaller businesses to use, which means the documentation required has to be proportionate to the claim.”
He said: “Records compiled at the end of the year from interviews and spreadsheets would struggle to show where the work happened. Platforms that capture R&D activity and staff time as the work is done give businesses and HMRC a consistent record, whatever the policy turns out to be. Businesses with detailed records will be better placed for any change.”
Jamie Young
Jamie Young is Senior Reporter at Business Matters, covering SME finance, employment law and Westminster policy since 2016. He has reported on every Budget and Autumn Statement since 2018, helped make sense of the 'covid era' and the bounce-back loan scheme from launch through the fraud investigations, and broke the magazine's coverage of the 2024 late-payment reforms. He joined Business Matters straight from completing his BA in Administration from Exeter University and is NCTJ-qualified. Reach him at jyoung@cbmeg.co.uk
