R&D Tax Relief – Can You Claim?

If you’re an innovative business, you may be eligible to claim Research and Development (R&D) tax relief. This is a valuable incentive designed to support companies investing in technological or scientific advancement. Many businesses either aren’t aware that this relief exists or mistakenly assume it doesn’t apply to them. In reality, R&D tax relief can benefit a wide range of sectors, from software development and engineering to agriculture and environmental technologies. If your company is working to solve complex problems or improve existing processes, it’s worth exploring whether your activities qualify.

What is R&D

The former Department for Business, Innovation & Skills defined research and development as:

“Research and development takes place when a project seeks to achieve an advance in science or technology through the resolution of scientific or technological uncertainty.”

The definition is purposefully broad so that it encompasses all sectors and all possible types of innovation. All of the following activities could qualify for R&D for tax purposes:

• New product, process or service development
• Changes or modifications to an existing product, process or service
• Internal projects
• Unsuccessful projects

You cannot claim R&D tax relief for a project if any of the following apply:

• The work is in the arts, humanities, or social sciences, including subjects like economics, which fall outside the scope of HMRC’s definition of R&D
• The project has already received R&D tax relief or Vaccines Research Relief totalling more than €7.5 million, which exceeds the allowable limit
• The project has been supported by other forms of State aid (excluding SME R&D tax relief), making it ineligible under UK tax rules
• The R&D work was subcontracted to your company by another business. Only the company commissioning the work may be eligible to claim
• Market research also does not qualify as R&D for tax purposes

When considering research and development (R&D), it’s essential that the work is undertaken with the intention of achieving an advance in overall knowledge or capability within the field of science or technology. This advance must involve the resolution of scientific or technological uncertainty. Meaning the outcome could not be easily deduced by a competent professional in the field. Qualifying R&D projects may involve creating a new process, material, device, product, or service, or making a significant improvement to an existing one. In some cases, the goal may be to fundamentally change how something functions, rather than simply enhancing its performance or appearance.

Tax relief

As of 1 April 2024, the UK government has introduced a merged R&D tax relief scheme and an Enhanced R&D Intensive Support (ERIS) measure to simplify and better target support for innovative businesses.

The merged R&D scheme

The merged scheme combines the previous SME R&D tax relief and R&D Expenditure Credit (RDEC) into a single framework. Key features include:

• A 20% expenditure credit for qualifying R&D costs
• The credit is taxable, treated as trading income, and subject to Corporation Tax
• Available to companies that:
  • Are actively trading
  • Are subject to UK Corporation Tax
  • Undertake projects that meet HMRC’s definition of R&D

This scheme is designed to streamline the process and reduce complexity, especially for companies that previously had to navigate between SME and RDEC rules.

Enhanced R&D Intensive Support (ERIS)

ERIS is a targeted support measure for loss-making SMEs that are heavily engaged in R&D. It offers:

• A total deduction of 186% of qualifying R&D costs (100% in accounts + 86% additional deduction)
• A payable tax credit worth up to 14.5% of the surrenderable loss, which is not taxable
• You cannot claim under both ERIS and the merged scheme for the same expenditure.

Step-by-step: how to make an R&D tax relief claim

1. Determine rigibility
   • Confirm your company is subject to UK Corporation Tax
   • Identify qualifying R&D activities: work must aim to resolve scientific or technological uncertainty and seek an advance in knowledge or capability
2. Identify qualifying costs
   • Include costs such as:
   • Staff salaries and NICs
   • Subcontractor and externally provided worker costs
   • Software and consumables
   • Utilities used in R&D
3. Submit a Claim Notification Form (LINK TO POST)
   • Mandatory for first-time claimants or those who haven’t claimed in the last 3 years
   • Must be submitted within 6 months of the end of the accounting period
4. Prepare the Additional Information Form (LINK TO POST)
   • Required for all claims from accounting periods starting on or after 1 April 2023
   • Includes project summaries, uncertainties, advances, and qualifying costs
   • Submit before or on the same day as your Corporation Tax return
5. Complete your Corporation Tax Return (CT600)
   • Include the R&D claim figures in the relevant boxes
   • Attach the Additional Information Form and any supporting documents
6. Receive relief or credit
   • If approved, you’ll receive either:
     • A reduction in your Corporation Tax bill, or
     • A cash credit (especially if loss-making and claiming under the SME or ERIS scheme)

If you would like to discuss this in more detail relating to your business, please feel free to book a free online meeting.