R&D Tax Credits explained
Your Company could be eligible for thousands of pounds in tax relief. Find out everything you need to know about R&D Tax Credits below:
What are R&D Tax Credits?
R&D Tax Credits are a type of company tax relief, received by companies undergoing research and development work upon submitting a claim to HMRC. R&D tax credits are available to any businesses from small and medium-sized companies (SMEs) to large enterprises.
The UK government introduced tax credit relief for R&D back in 2000. This government incentive has helped reward companies nationwide for investing in innovation and stimulating national economic growth. Since then, thousands of companies working in a wide range of industries and sectors have received over £60billion in financial assistance.
Why are Tax Credits important?
Since their introduction, R&D Tax Credits have encouraged businesses all over the UK to invest in R&D, innovating products, processes, and services. In 2022-23, over 65,000 companies claimed back around £7.5billion in tax relief.
R&D Tax Credits:
- Provide a huge financial boost to SMEs and large companies, which stimulates in-house productivity, speeds up new developments, and has an overall positive impact on company culture.
- Are much more accessible than other forms of R&D funding, such as corporate debt or VC investment.
- Help push companies ahead of their competitors, helping them grow as a business in the long run.
What types of Tax Credits can you receive?
There are various ways in which an R&D tax claim can result in different types of credit for a company. Remember, this type of tax relief can be hugely beneficial for a business as it enables significantly greater investment which can generate growth and prosperity:
- Reductions in the company’s Corporation Tax bill (for profit-making SMEs)
- Cash credit sums of up to 33% of R&D expenditure (for most SMEs)
- Payable tax credit (for large companies under the RDEC scheme, applicable only to accounting periods which started before the 1st of April 2024)
Find the value of your claim
Your Company could be eligible for thousands of pounds in tax relief. Find out everything you need to know about R&D Tax Credits below:
What is Research & Development?
R&D, is an activity undertaken by companies when attempting to develop new products, processes, or services, or improve and optimise existing ones.
What about Tax Relief for creative industries?
Creative industry tax relief covers a group of eight Corporation Tax reliefs that permit eligible companies to increase the amount of expenditure they can claim.
Eligible R&D activities
Optimise your R&D tax relief with an expert team that handles R&D claims for a living.
Is your business eligible for R&D Tax Credits?
Research and Development, or R&D, is an activity undertaken by companies when attempting to develop new products, processes, or services, or improve and optimise existing ones. R&D work carries a certain degree of risk since there is no certainty that the attempt is technologically feasible. Please note the success of your project does not influence your eligibility for R&D tax relief claims.
According to Gov.uk, what counts as research and development for tax purposes falls into the following categories:
- R&D for tax purposes takes place when a project seeks to achieve an advance in science or technology.
- The activities which directly contribute to achieving this advance in science or technology through the resolution of scientific or technological uncertainty are R&D.
- Certain qualifying indirect activities related to the project are also R&D. Activities other than qualifying indirect activities which do not directly contribute to the resolution of the project’s scientific or technological uncertainty are not R&D.
HMRC’s definition isn’t always so clear-cut. Not sure if your work counts as R&D?
The R&D tax credits system does not specifically target businesses operating within the creative industries. However, in 2023 the government announced two new tax relief schemes, the Audio-Visual Expenditure Credit (AVEC) and the Video Games Expenditure Credit (VGEC).
Through these schemes, the government made temporary tax relief available to companies that are directly involved in the production and development of:
- Video games
- Theatrical productions
- Orchestral concerts
- Museum or gallery exhibitions
- Film and television
Read our guide to creative industries tax relief to learn more.
The eligible R&D activities are:
- Creating or developing industry firsts, such as new products or processes, bespoke software, or composite material
- Adapting to industry requirements (e.g. energy efficiency, carbon emission reductions)
- Testing new (or substituting) materials through trial and error
- Overcoming technical challenges
- Streamlining processes
What are the qualifying costs for R&D Tax Credits?
For each R&D project, you’ll need to keep track of the relevant expenses to submit a valid claim. Below, we break down the eligible R&D expenditure:
- Cost of staff directly involved in R&D work – wages/salaries, Class 1 NI contributions, pension fund contributions
- Consumable items – fuel, materials, power, water
- Subcontractor costs
- Clinical trial volunteers
- Data licence and cloud computing (after 1st of April 2023)
- Externally provided worker costs (from staff provider connected to your company)
- Externally provided worker costs (from staff provider not connected to your company)
- Consumable items whose ownership is sold or transferred
- Staff costs unrelated to R&D work – redundancy payments, clerical or maintenance work that would have been done anyway e.g. managing payroll
- Subcontractor costs
- The cost of land
- The cost of patents and trademarks
- Rent or rates
Source: Research and Development (R&D) tax relief for small and medium-sized enterprises – GOV.UK
R&D Tax Credit schemes
In 2024, the UK government implemented major changes to the R&D tax claim scheme. Depending on the relevant accounting period that your claim applies to, your business might fall into different categories:
R&D schemes before the 1st of April 2024
RDEC Scheme
- The RDEC scheme applies to larger companies
- Also applies to SMEs subcontracted to conduct R&D work
SME Scheme
- Applies to profit-making and loss-making SMEs
- Under the SME scheme, R&D-intensive SMEs (which spend 40% or more of their overall expenditure on R&D) are eligible for higher rates of tax relief
R&D Schemes after the 1st of April 2024
Merged Scheme
- Resulted from merging the two previous schemes
Intensive Scheme
- Only applies to SMEs that spend over 30% of their total expenditure on qualifying R&D activities
If you want to find out more about how your company will be affected by these changes, please get in touch with our expert team:
The R&D Tax Credit process – how much can you claim?
You can make an R&D tax claim each year, as well as a retroactive claim for the previous two years. For example, if the end date of your accounting period is March 31st, you would need to submit your R&D claim for the accounting period of April 1st 2023 – March 31st 2024 by midnight on March 31st 2026.
How long does it take to receive R&D Tax Credits?
HMRC processes 95% of all R&D claims within 28 days, but it can sometimes take up to 100 days. The wait time depends on the complexity of your business or claim, as well as the season – most companies end their accounting year in December or March, so claims submitted during those busy times will take longer to process.
Your funds typically reach your account within 20 days after your claim is approved.
How much can my company claim in R&D Tax Credits?
The amount of tax relief you are eligible to claim will depend on the size of your business, your R&D spend, your profit status, as well as the scheme you fall under.
Check the values below for a rough estimate:
| Before the 1st April 2023 | Between 1st April 2023 – 31st March 2024 | After 1st April 2024 |
| Component Type | SME scheme | RDEC scheme | RDEC scheme | RDEC scheme | RDEC scheme | RDEC scheme |
|---|---|---|---|---|---|---|
| Loss-making SMEs | Up to 33.35% | – | Up to 18.6% | – | Up to 20% | – |
| Profit-making SMEs | – | – | Up to 21.5% | – | Up to 20% | – |
| R&D-intensive SMEs | – | – | Up to 27% | – | – | Up to 27% |
| Large companies | – | Up to 13% | – | Up to 20% | Up to 20% | – |
Find out the value of your claim
Any business in any sector can qualify. Discover how much you could be owed today!
Avoid costly mistakes by working with randd
When submitting an R&D tax claim, someone lacking specialist knowledge in the field faces the risk of making mistakes, such as including expenditure for activities that do not qualify or omitting some that do. HMRC may launch a compliance enquiry.
Legislation can be complex and evolves regularly, so there is a degree of risk in submitting claims without expert support. When you choose randd as your R&D tax specialist, you are assured of numerous benefits, including:
- Minimised risk of enquiries and claim rejection – randd’s enquiry rate with HMRC is just 3% compared to the industry average of 20%
- Fully transparent, bespoke consultations – we will not put forward a claim about which we have any concerns
- A specialist team dedicated to your project, conducting thorough research to build a strong claim which optimises tax credit value
- Substantially more R&D tax relief than you would benefit from through an external accountant, alternative agent or self-submission.
The randd research and development tax claim process
With over 15 years in the industry, we have the specialist knowledge to support countless innovative businesses as they push the boundaries of technological development. We have successfully claimed back millions of pounds through our seamless, simplified tax claims process:
1. Eligibility check
1. Eligibility check
Using our tax credits calculator, you can check if your business qualifies for R&D tax credits, as well as receive an estimate of how much you could claim. You’ll then have a prequalifying call with an expert member of our team – once we establish you have qualified, we can issue a contract.
2. Compiling and submitting your HMRC claim
2. Compiling and submitting your HMRC claim
Once you’ve signed the contract, we’ll book you in for an initial consultation within 1-2 weeks. Throughout the process, our dedicated team of tax credit managers will ask for all the details they need and will put in hours of research to craft a solid claim that maximises tax credit.
3. Risk assessment
3. Risk assessment
We perform 3 different stages of risk assessment – at sign-up, at the first technical meeting and again before submission. We minimise any obstacles to ensure a smooth process and a successful claim, keeping you fully in the loop from start to finish.
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