How to tell if a business will qualify for R&D tax reliefs

When offering R&D tax relief support for clients, accountants will want to know who will be helped by the service and who is a compliance risk.

Scoping calls can be useful for establishing this information, but busy accountants may want a more efficient way to sort through clients.

There are some factors that HMRC uses to determine R&D tax relief eligibility and they are worth understanding.

Are R&D tax reliefs limited by sector?

R&D tax reliefs focus on work undertaken to achieve an appreciable improvement in a system, service or product, expand the knowledge of a sector and tackle a scientific or technological uncertainty.

As such, there are some sectors that are more likely to contain valid R&D projects. These are:

• Manufacturing and Engineering
• Software Development
• Aerospace, Rail and Automotive
• Green or Carbon Neutral Energy
• Sports Science
• Pharmaceuticals
• Retail and Wholesale
• Health – (not Humanities, such as Psychology)

Niche sectors can include valid R&D work but are less likely to do so, unless they offer engineering solutions to customers, have in-house software teams or have manufacturing/product development within their organisation. This can make it more challenging if this type of work is not reflected in their SIC code.

R&D tax relief claims originating from these sectors will need more robust technical narratives to illustrate the legitimacy of the claim.

Sectors regarded as niche:

• Textiles
• Construction
• Food and Beverage (typically focused on processing – not a change of ingredients)
• Agriculture – arable or pastoral

The following sectors are unlikely to have valid R&D work and should generally be avoided:

• Services – (accountants, solicitors, hairdressers, etc.)
• Restaurants, Pubs, Leisure Centres and Hotels
• Care Homes
• Property Developers
• Education and Social Work

Understanding the sector in which a client operates is a good way of determining whether it is worth exploring the work they have done and how much support you are likely to need with an R&D tax relief claim.

Does the size of a business affect eligibility for R&D tax relief claims?

Since the Merged Scheme was introduced in 2024, the size of a business has mattered less in terms of R&D tax relief claims.

Businesses are now subject to the same scheme, regardless of size, although loss-making businesses do have some specific considerations.

Loss-making R&D intensive SMEs, those companies with fewer than 500 staff and a turnover under £83 million that spend at least 30 per cent of expenditure on R&D, can make a claim under the ERIS scheme.

Outside of this, the only factor that size influences is whether the R&D tax relief claim is worth filing.

As R&D tax reliefs are tied to a business’s expenditure, it may not be worth submitting an R&D tax relief claim if that figure is quite low, regardless of the validity of the work.

Different accountants will have different thresholds for this, but some claims will likely never be worth the effort.

How do I know if a project is valid for R&D tax relief?

Valid projects must:

• Be significant in the sector.
• Not be readily deduced by a competent professional.
• Involve some degree of technical uncertainty.
• Feature work conducted during the financial year.

The specifics can vary, so getting the expert support of an R&D tax consultant is vital for ensuring that time is not wasted on ineligible projects.

Our team are on hand to help accountants and innovative businesses determine whether work is eligible for an R&D tax relief claim and whether it is worth making the claim.

We can also support with the compilation of R&D tax relief claims to ensure that they align with HMRC’s expectations and improve the chances of success.

Where enquiries may arise, we offer a robust defence to ensure that valid claims are not lost.

To find out whether a business can qualify for R&D tax reliefs, get in touch with our team today.

Adam Bointon

Adam Bointon is a Technical Director specialising in R&D Tax Credits for SMEs in manufacturing and software sectors. With over 15 years’ experience, he works closely with businesses to identify qualifying R&D activities and prepare clear, compliant claims. He combines technical expertise with a strong understanding of economics and finance to support successful outcomes. Adam also contributes to industry webinars and CPD sessions, sharing insights on R&D tax relief and HMRC requirements.