R&D Tax Relief is a government scheme designed to encourage innovation and technological advancement in UK businesses. The scheme allows companies to reclaim some of their expenditure on qualifying research and development activities.
The R&D tax credit scheme was introduced by the government in 2000. It allows companies to claim relief for expenditure incurred on qualifying research and development activities.
The scheme is open to businesses of all sizes and sectors, not just those in science or technology. Qualifying costs can include staff salaries, subcontractors, software, consumables and utilities.
Depending on the circumstances, companies may receive either a reduction in their Corporation Tax bill or a cash credit.
For R&D tax purposes, an SME is defined as having fewer than 500 employees and either turnover not exceeding £100 million or gross assets not exceeding £86 million.
SMEs with less than 30% qualifying R&D spend claim under the merged scheme. A qualifying loss-making SME with R&D intensity of at least 30% may instead qualify for Enhanced R&D Intensive Support.
Loss-making SMEs meeting the 30% R&D intensity threshold can qualify for the enhanced intensive regime.
Businesses with 500 or more employees, and either turnover above £100 million or gross assets above £86 million, fall within the merged scheme.
Under ERIS, qualifying companies benefit from an additional 86% tax deduction on R&D expenditure and a higher 14.5% payable credit, resulting in a potential benefit of up to 27%.
Qualifying R&D expenditure must represent at least 30% of relevant expenditure for the company to qualify.
The intensive regime provides an additional 86% tax deduction on qualifying R&D expenditure.
The surrenderable loss is eligible for a higher 14.5% payable credit rate.
A one-year grace period applies where a business temporarily falls below the 30% R&D intensity threshold.
The grace period helps provide greater stability where a qualifying company's R&D intensity fluctuates between accounting periods.
A project must seek an advance in the overall knowledge or capability within a field of science or technology, rather than simply doing something that is new to the company.
The project must also involve scientific or technological uncertainty that could not readily be resolved by a competent professional working in the relevant field.
HMRC looks at whether the project sought to improve the overall knowledge or capability available in the relevant field of science or technology, not simply the company's own knowledge.
The outcome, method or solution must not have been readily deducible by a competent professional using the knowledge and capability already available.
Eligibility is based on the advance the project sought. Work may still qualify where the intended advance was only partially achieved or ultimately unsuccessful.
R&D activity can take many different forms depending on the field of science or technology involved.
Qualifying work may involve engineering, manufacturing, software, medical technology and many other areas. What matters is whether the project meets the underlying conditions for R&D tax relief.
Creating precision systems or components that outperform current capabilities.
Improving production efficiency, reducing waste or developing materials with enhanced strength or resistance.
Creating new diagnostic methods, treatments or devices.
Developing algorithms or platforms that solve performance, integration or scalability issues.
Typical categories of qualifying expenditure include the following where the costs relate to qualifying R&D activity.
Staff costs including employer National Insurance contributions and pension contributions.
UK-based externally provided workers can qualify where the relevant conditions of the scheme are met.
Certain subcontractor costs may qualify subject to the applicable R&D rules.
Consumables and materials used in R&D, including light, heat, power and water where the conditions are met.
Software directly used in qualifying R&D activities can form part of the claim.
Relevant cloud computing and data costs can qualify where they are used directly for qualifying R&D.
A claim requires the qualifying projects and costs to be identified, documented and submitted to HMRC in the required form.
Submit an Advance Notification Form within six months of the accounting period end unless the exemption rules apply.
Identify work that meets HMRC's definition of R&D for tax purposes.
Identify expenditure falling within the relevant qualifying categories.
Explain the technological uncertainties, the advance sought and the R&D undertaken.
The required Additional Information Form is submitted to HMRC online.
The relevant R&D figures are included within the company's Corporation Tax Return.
Depending on the company's circumstances, the benefit may be received as a tax saving or cash credit.
R&D tax relief claims must generally be made within two years of the end of the relevant accounting period. If a company is claiming for the first time, or does not meet the exemption based on previous claims, an Advance Notification Form may also be required within six months of the accounting period end.
At MSC R&D, we work with businesses across all sectors to identify, document and submit compliant R&D Tax Relief claims.
Our approach combines R&D tax expertise, technical understanding, Quality Assurance and an efficient process designed to minimise disruption to your business.
Over 150 years of combined R&D tax experience, including 50 years of direct HMRC knowledge.
Every claim undergoes rigorous Quality Assurance, including assessment by former HMRC inspectors.
ISO 9001 and ISO 27001 certification supports data protection and consistent process quality.
Our Blitz Day® process streamlines claim preparation, often requiring just one focused day with the relevant technical team.
If you hold or license qualifying patents, you may also benefit from Patent Box, which can apply a reduced 10% Corporation Tax rate to qualifying profits from patented inventions.
Patent Box can be used alongside R&D Tax Relief, allowing businesses to consider relief both while undertaking qualifying development and later when patented technology generates qualifying profits.
Read about Patent Box
We can discuss your projects, accounting period and the R&D tax relief scheme that applies to your company.
