What is R&D Tax Relief?
R&D Tax Relief is a Corporation Tax relief that can result in a payable credit or reduce the tax payable. Here, we explain what R&D tax credits are, the changes to the schemes, including the introduction of the merged and ERIS schemes, and best practices to ensure you are building robust claims.
With multiple changes to the R&D Tax scheme and an increase in compliance checks from HMRC, you need to ensure your claim is robust and that you have a reputable advisor.
Why are R&D tax incentives typically underclaimed?
Why does the scheme exist?
Who is eligible?
Eligibility Criteria:
To be eligible for R&D tax credits, your business must be:
- A UK incorporated company subject to corporation tax (but can be loss-making).
- Have carried out qualifying activities.
- Have spent money on qualifying R&D projects.
Sectors with qualifying R&D
Whilst R&D can occur in every sector HMRC have outlined that R&D rarely occurs in sectors such as care homes, pubs and restaurants, hotels or professions like care or personal training. We would advise taking heavy precautions if you are contacted by companies to make a claim in the above sectors.
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ArchitectureArchitecture
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ConstructionConstruction
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Software & IT developmentSoftware & IT development
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Waste Management & RecyclingWaste Management & Recycling
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Aquaculture & FishingAquaculture & Fishing
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EngineeringEngineering
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AgricultureAgriculture
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Food and BeverageFood and Beverage
What counts as R&D?
As part of your R&D Tax methodology, you will claim for the projects in which qualifying R&D occurred in the accounting periods in question. You may have one or several R&D projects or an overarching commercial project that triggers the need for separate scientific or technological development as an R&D project. To build a robust claim, you need to ensure that:
- The project is relevant to the company’s trading activities or industry.
- The focus of the project is to either create something new, improve existing solutions, or replicate something in a fundamentally different way.
- The advance must aim to move knowledge and capabilities beyond the existing baseline in science or technology.
- The work must involve scientific or technological uncertainty. It’s not enough to seek an advance; the work must go beyond the baseline knowledge and capabilities in the field.
- Given the constraints of your project and the information in the public domain, you must establish that the uncertainties would not be readily deducible or easy to solve by another competent professional in the field.
- The boundaries of the project relate to the uncertainties; once the technological/scientific uncertainty is resolved, so is the R&D project.
- Disqualify routine activities and only include activities and related costs up until the uncertainty is resolved.
Is my claim robust?
Our Head of Tax compliance Simba brings experience from having defended over 450 HMRC enquiries into R&D Tax (the most enquiries by volume in the UK) over the last 16+ years, he shares best practices in picking a provider and what makes for a robust claim in his article which you can read here.
Ensure your claim is SecuRD™
We built a product that we believe is the safest way to claim R&D Tax.
Find out how we are revolutionising R&D Tax claims
How do R&D tax credits work?
The new merged R&D expenditure credit scheme applies to accounting periods beginning on or after 1 April 2024. This brings both SMEs and large businesses under the same scheme and applies the same above-the-line credit rate of 20%.
Determining your company’s profitability, size and the accounting period in which you wish to claim will determine the type and rate of relief you can receive which is illustrated in the table below.
What costs qualify for R&D Tax Credits?
Which sectors have qualifying activities for R&D Tax?
Whilst R&D can occur in every sector, HMRC has outlined that R&D rarely occurs in sectors such as care homes, pubs and restaurants, hotels, or professions like care or personal training. We would advise taking heavy precautions if you are contacted by companies to make a claim in the above sectors.
What’s the Benefit?
Cash received from R&D can be reinvested into:
01
Further Development Projects
02
Hiring More Staff
03
Training
04
Capital Equipment
Complete R&D Solutions
Key Benefits
• Repeatable: Can be claimed for each accounting period if the qualifying criteria are
met.
• Boosts EBITDA: R&D Expenditure Credit Scheme (RDEC) boosts EBITDA by recognising the credit as additional income before tax relief.
• Increased company valuation – If related to a multiple of profitability or turnover.
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