Research by UHY Ross Brooke, a member firm of the accountancy group UHY Hacker Young, found that the value of claims fell by 4% from £6.9bn in 2019/20 to £6.6bn in 2021/21.

The drop has been caused by HMRC becoming ‘stricter’ in approving claims for R&D tax credits following a rise in suspected fraud in 2020.

Research and development tax credits play an important role in the UK economy as they give businesses an incentive to improve productivity and drive innovation.

The fall in R&D tax credit expenditure risks hindering the UK businesses’ ability to remain competitive in the global ‘innovation race’, the firm warned.

Phil Kinzett-Evans, tax partner at UHY Ross Brooke, said: ‘The UK will find itself dropping further behind the rest of the world in terms of R&D expenditure if HMRC blocks tax relief claims that it should be approving. Nobody wants fraudulent claims to get through but similarly, businesses need to have certainty over how their R&D spend will be treated.