R&D Tax Credit FAQs

Research and Development Tax Credits are a UK government incentive designed to encourage companies to invest in innovation and technical development. The tax credits can allow a company to reduce their tax bill or claim cash credits as a proportion of their R&D expenditure over the qualifying period.

R&D is broader than many companies realise, and even routine-looking development work can qualify as R&D. A good example is an engineering fabrication company that partnered with randd to identify qualifying R&D within its design, manufacturing, and feasibility processes, resulting in a successful R&D tax credit claim above the industry average.

If your business is attempting to resolve scientific or technological uncertainties with some level of risk, you may be carrying out qualifying R&D, regardless of your industry.

If you are problem-solving and looking to overcome technological challenges – whether by creating new products, processes or services, or improving existing ones – your work could qualify as R&D. Importantly, the project doesn’t need to be successful to be eligible.

R&D also applies in more traditional sectors than you might expect. Manufacturing R&D can still qualify, especially where companies are developing or adapting processes, materials, or techniques. Our work with an engineering fabrication company, which identified qualifying R&D within its technical processes and feasibility work, demonstrates how HMRC’s R&D criteria can apply well beyond the obvious ‘high-tech’ industries.

The amount you can claim back depends on the size of your business and whether it is profit-making or loss-making.

SMEs can claim up to 21.5% of their qualifying R&D costs, or up to 27% if classed as ‘R&D intensive’ (more than 30% of total expenditure is spent on R&D).

Profit-making companies typically benefit through a reduction in Corporation Tax, while loss-making companies may be able to surrender losses for a payable cash credit.

Large companies can claim under the RDEC or merged scheme, currently worth 20% and awarded in a similar way.

Yes. Depending on whether you are claiming under the SME or RDEC scheme, you may be able to include certain subcontractor costs within your claim. There are specific rules that apply, but our team will review this for you and ensure costs are treated correctly.  

You can submit an R&D Tax Credit claim up to two years after the end of the accounting period in which the qualifying R&D expenditure was incurred.

Yes, our expertise also covers Creative Industries Tax Relief (CITR), which allows qualifying clients to increase their allowable expenditure and reduce their Corporation Tax liability, or convert losses into a payable tax credit.

A company can claim CITR if it is subject to UK Corporation Tax and is directly involved in the production and development of at least one of the following:

• animation television
• video games
• theatrical productions
• orchestral concerts
• museum or gallery exhibitions
• films
• high-end television
• children’s television

Yes – you don’t need to have paid Corporation Tax to claim R&D Tax Credits. If your company is loss-making, you may be able to surrender your R&D losses in exchange for a payable cash credit, which is often paid directly by HMRC. This is particularly common for start-ups and growing businesses investing heavily in innovation.

If your business is profit-making, R&D tax relief is usually received as a reduction in Corporation Tax or, in some cases, a repayable credit under the relevant scheme. The exact benefit you’ll receive depends on your company’s financial position and which R&D scheme applies.

If your business has carried out qualifying R&D activities within the last two years, you may be eligible to claim.

The easiest way to check if you qualify is to use our R&D Tax Credit calculator or get in touch with our team.

Business size mainly affects which scheme applies to your claim, particularly for accounting periods beginning before 1 April 2024. The first, the SME scheme, is for start-ups and businesses with fewer than 500 staff and turnover under £83million.

The second is the RDEC scheme for large companies, which is defined as having more than 500 staff and generating turnover in excess of £87million.

For accounting periods beginning on or after 1 April 2024, all sizes of company can claim under the Merged scheme, as long as R&D work that qualifies has been carried out. You can read more about the recent changes to the R&D Tax Credit schemes here.

For staff working directly on the R&D project, you can claim a proportion of their:

• Salaries
• Wages
• Class 1 National Insurance contributions
• Pension fund contributions

You can also claim for administrative or support staff who work to directly support a project (for example, specialist cleaning staff). But you can’t claim for clerical or maintenance work that would have been done anyway, such as managing payroll.

You can claim against 65% of the relevant payments made to an external agency if they provide staff for the project.

You can claim for consumable items used directly throughout the R&D process, including:

• materials
• utilities
• cleaning products

However, R&D tax relief cannot be claimed for:

• rent or business rates
• the production and distribution of goods and services
• capital expenditure
• the cost of land
• the cost of patents and trademarks

You can read more about qualifying consumable costs here.

If your business has received a grant or a form of financial aid, this can compromise your R&D tax claim. Under European Commission rules, companies generally cannot receive more than one type of notified state aid for the same R&D project.

That said, receiving a grant does not automatically prevent you from claiming R&D tax relief. Different rules apply depending on the type of funding received, and there are still ways for UK businesses to claim back qualifying R&D costs. Because this area is complex, it’s important to seek advice from a R&D tax specialist before submitting a claim to ensure you receive the maximum available support.

It’s helpful to understand the main types of state aid, which are outlined below:

• Non- project-specific grant is a form of notified state aid and can be spent on anything, for example, the Coronavirus Business Interruption Loan scheme (CBILS). Any R&D projects funded in this way will not be eligible for SME relief. You will have to claim for them under the RDEC scheme instead, which is less generous.
• A project-specific grant provides funding for pre-agreed projects. Any tax-credit-eligible money you invest in the pre-agreed projects needs to be claimed via RDEC. Any capital you invest in eligible projects that you have not received a grant for can be claimed under the SME scheme.
• De minimis aid is a form of state aid that is capped at €200,000 over three consecutive fiscal years, and it does not count as notified state aid. You will have to claim de minimis aid funding you invested in qualifying R&D projects through the RDEC scheme. But you can claim all of your tax credit-eligible investment under the SME scheme, even if you mix your own capital and de minimis funding in the same projects.
• Non-state-aid grants are treated in the same way as de minimis aid. The funding itself must be claimed under RDEC, but all other eligible investments can be claimed under the SME scheme. The benefit of non-state-aid grants is that there is no limit to the value you can receive. These grants are provided by the European Union or by private companies.

Claiming grants and the R&D incentive

The SME R&D tax scheme itself is a form of notified state aid, as are many government grants. If you have received a government grant for a specific R&D project, you cannot also claim SME R&D tax relief for the same project. In this case, the RDEC scheme must be used instead, as it is not classed as notified state aid.

An R&D Tax Credit claim can be submitted as part of your Corporation Tax return (CT600) and needs to include:

• A technical report explaining the qualifying R&D activities
• A breakdown of eligible expenditure
• The required HMRC additional information form

Claims must be submitted within two years of the end of the relevant accounting period, and since HMRC scrutiny of R&D claims has increased in recent years, it’s important to make it accurate, well-evidenced, and fully compliant.

Our team manages the entire process for you, from assessing eligibility and preparing the documentation to submitting the claim and dealing with HMRC if needed. Make a confidential enquiry today.