The UK is home to over 5.5 million small and medium-sized enterprises, many of which are quietly developing new products, refining processes, and investing in homegrown innovation. Yet despite this activity, new research shows that only 6% of SMEs are claiming R&D tax relief: one of the most powerful government incentives designed to reward exactly that kind of forward-thinking work.
At RandD UK, we’ve seen the gap between innovation and incentive play out time and again, and we believe it’s not just a missed financial opportunity but a structural issue that needs to be addressed. In this article, we’ll explore the surprising data behind SME R&D activity, uncover the reasons most businesses still aren’t claiming, and offer practical steps for bridging the gap, to help more founders access the relief they’re entitled to.
The data gap
The disconnect between innovation and R&D tax claims is hard to ignore. Between 2020 and 2022, 36% of UK businesses were considered “innovation active” by the ONS, and in the two years prior to that, the figure was even higher, at 45%. Yet despite this, only a small fraction are tapping into the support designed to reward that innovation.
New data uncovers some striking regional contrasts. In Buckinghamshire, the area with the highest average potential claim, eligible companies could access around £138,000 in relief, but most aren’t. Berkshire follows closely behind, with fewer than 5% of innovation-active businesses making claims. Even Oxfordshire, often considered one of the UK’s most innovation-driven counties, sees just 893 companies (around 6%) submitting claims for R&D relief.
The gap between those innovating and those accessing support is significant. And for businesses operating in a challenging post-pandemic economy, that’s not just a gap, but a growing liability.
Why aren’t SMEs claiming?
There’s no single reason why the majority of SMEs aren’t engaging with R&D tax relief, but there are certainly some clear patterns.
The first is perception. Many founders still associate “R&D” with white coats and high-tech labs, rather than the day-to-day problem-solving that happens in sectors like manufacturing, software, construction, or product development. If you’re improving a process, overcoming a technical challenge, or investing in a new solution, your work may well qualify – even without a formal research team. But if you’ve never been told that, the incentive is likely to be overlooked.
Another common barrier is the assumption that a business needs to be large, profitable, or heavily funded to claim. In fact, the SME R&D tax scheme is specifically designed for smaller companies (those with under 500 employees and less than £85 million in turnover). You don’t need to be paying corporation tax or even turning a profit to benefit. Loss-making businesses can still receive a cash credit, which for early-stage firms can make a substantial difference.
Then there’s the complexity. The claims process, with its technical definitions and documentation requirements, can be off-putting. Terms like “scientific or technological uncertainty” don’t always resonate with business owners, even if their work fits the criteria. As a result, some dismiss the idea before they’ve had a proper assessment.
Finally, some SMEs assume their R&D spend is too low to make a claim worthwhile. But qualifying expenditure goes beyond just lab costs; it can include staff time, software licences, cloud computing, utilities, and more. For businesses operating on tight margins, even modest claims can deliver meaningful cash flow benefits.
The missed opportunity
This lack of engagement isn’t just a missed financial opportunity, it can affect a company’s long-term growth trajectory. R&D tax relief can offer a lifeline when cash is tight, helping businesses hire staff, accelerate development, or even survive economic shocks.
An average benefit of over £130,000, as seen in areas like Buckinghamshire, could represent months of operating runway for a small firm. Not to mention the compounding benefits of being able to reinvest in innovation year after year.
When SMEs aren’t claiming, they’re often inadvertently ceding a competitive edge to those who are. Companies that make the most of tax incentives have more resources to scale, experiment, and adapt, which is especially important in fast-moving sectors. As the gap between claimers and non-claimers widens, so too does the divide in business resilience and long-term success.
What needs to change
If we want more UK SMEs to benefit from R&D tax relief, we need to make the system work more clearly and more proactively for them.
First, we need to broaden the understanding of what “qualifies.” The definition of R&D for tax purposes is wider than most assume, encompassing a huge range of projects across sectors. Government agencies, industry bodies, and local business networks can all play a role in reshaping that narrative to move it beyond niche innovation and into the everyday reality of SME development.
Second, accountants and advisors must be encouraged to raise the subject early. Too often, R&D only comes up when a client asks about it directly. In reality, it should be a standard part of annual conversations around business activity and financial planning. Many SMEs miss out simply because no one ever asked them the right questions.
Lastly, where appropriate, businesses should consider working with R&D specialists. While it’s possible to file a claim independently, the requirements around documentation and technical justification can be complex. A qualified consultant can help businesses both identify and prepare strong claims, and maximise the value of relief. This often uncovers qualifying spend that may otherwise be missed.
In summary
Innovation is happening across the UK every single day, not only in labs and tech parks, but in factories, garages, farms, and small offices too. However, for that innovation to thrive, it needs the right support.
R&D tax relief was designed to provide that support. Yet right now, 94% of eligible businesses are leaving money behind, simply because they don’t know it’s there, or don’t think it applies to them.
That doesn’t have to be the case. By challenging outdated assumptions and encouraging proactive conversations between businesses and their advisors, we can help close the gap. In doing so, we’ll unlock vital resources for the very companies driving innovation from the ground up.
If you think your business might qualify, now is the time to take a closer look. The support is there, it’s just a matter of knowing how to claim it.
About the author: Ryan Sian, Managing Director of RandD UK, has over a decade of experience in R&D tax consultancy and holds a Chartership qualification. Through managing a diverse and growing client portfolio, he has developed specialist knowledge in SME and RDEC tax schemes, helping companies to maximise government incentives.