R&D eligibility explained
R&D Tax Credits are a very niche part of the UK tax code that could bring your company thousands of pounds in tax relief. But first, it’s important to understand your R&D eligibility.
Businesses eligible for R&D tax credits
Companies of all sizes can claim R&D Tax Credits.
The size of your business will determine which R&D Tax Credits scheme you are eligible for and ultimately what proportion of your spend you can claim back, but every business registered in the UK is eligible. R&D tax expenditure can be claimed by businesses in the following industries:
- Animation, games & apps
- Aviation & marine
- Chemicals & sealants
- Cosmetics & personal care
- Construction & property
- Energy
- Farming & agriculture
- Food & drink
- Manufacturing & engineering
- Medical & pharmaceutical
- Printing & packaging
- Quarrying & mining
- Security & electrical
- Software & IT
- Textiles & fabrics
Which costs are eligible for R&D?
Eligible R&D activities:
- Overcoming technical challenges
- Trialling new or substituting materials
- Streamlining processes
- Industry firsts
- Creating and testing prototypes
- Developing bespoke software
- Trial and error
R&D eligibility examples
Within the most popular industry for R&D tax credit claims, Manufacturing and Engineering, examples of eligible R&D activities include:
- Creating or developing new products or processes
- Adapting to changes in legislation or industry requirements, including energy efficiency and reducing carbon emissions
- Developing a new and innovative approach to manufacturing, engineering and foundries systems
- Bespoke solutions
- Manufacturing prototypes, pilot runs and testing
- Developing or creating new composite materials
- Trialling and developing systems to potentially improve performance, cost-efficiency or methodology
We illustrate case studies to give business owners an idea of which activities can be claimed for and how much you can earn in R&D tax relief.
Is R&D Tax Credits eligibility changing?
For accounting periods up to March 31 2024, the R&D tax structure consisted of two schemes: SME, intended for smaller companies, and RDEC, which is mostly for larger companies consisting of more than 500 members of staff.
From April 1 2024, the two schemes were merged with one set of rules. However, there are new qualifying rules for subcontracted and subsidised R&D, which was previously only exclusive to those claiming through the RDEC scheme.
Further to this change, the threshold for R&D intensity has been lowered from 40% to 30%, which means more companies can benefit from higher rates of relief. There are, however, new restrictions on overseas R&D expenditure.
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randd has delivered for decades on HMRC submissions, helping our clients claim back millions of pounds in tax relief and cash lump sums.
Your dedicated expert will have expertise and experience in your field, keeping up to date with any tax relief changes to ensure compliance and optimise your claim.
Profitable businesses as well as those operating at a loss can claim R&D tax credits. To be eligible, your SME or large company is simply required to be a UK limited trading company with a set of financial accounts and qualifying expenditure.
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What qualifies as R&D expenditure and what sectors could typically benefit from tax relief?
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R&D eligibility FAQs
How do I know if my organisation is eligible to claim R&D Tax Credits?
UK businesses in any industry sector can claim R&D tax credits, providing qualifying research and development activities are being carried out. If you are unsure, contact an expert to find out.
What is classed as an advance in science or technology?
R&D can be claimed for attempts to improve an existing product or process or innovate or create a new product or process.
Which R&D Tax Credit scheme is right for my business?
The main differentiator is based on company size: a company is classed as large if it consists of more than 500 members of staff. In that case, RDEC would be the appropriate scheme. For less than 500 members of staff, the SME scheme usually applies. From April 1 2024, the two schemes are merging.
How much can eligible businesses claim in R&D Tax Credits?
There is no limit for how many R&D activities a company can claim for, providing such activities were conducted within its past two financial years. Use our R&D tax credits calculator for an indicative guide to how much relief you may be due.
Is a business eligible for R&D Tax Credits if it has received a subsidy or grant?
Receiving a subsidy or grant does not automatically disqualify a UK business from claiming R&D tax credits, but it is vital to evaluate the specific circumstances and ensure the R&D activities meet the eligibility criteria. Contact us for expert advice.
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