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Research and Development (R&D) Tax Relief and Credits support companies that work on innovative projects in science and technology. The scheme is applicable to companies that are creating or developing new products or processes or changing existing products and processes in an appreciably improved way, for example, so that the process is faster, the product cheaper to produce or the method or material used more efficient.

Any type of company can apply for the relief provided it is taking a risk by trying to resolve scientific or challenging technical uncertainties which are not easily deducible by a competent professional, which means that finding a solution is complex.

The work that qualifies for R&D relief must be part of a specific project to make an advance in science or technology. It cannot be an advance within a social science – like economics – or a theoretical field – such as pure maths. The project must relate to your company’s trade – either an existing one, or one that you intend to start up based on the results of the R&D. To get R&D relief you need to explain how a project:

• looked for an advance in science and technology
• had to overcome uncertainty
• tried to overcome this uncertainty
• could not be easily worked out by a professional in the field

Your project may research or develop a new process, product or service or improve on an existing one.

Companies working in a wide range of sectors can qualify, provided they meet the claim criteria by clearly demonstrating they are working on innovative projects which are seeking to make a scientific advance. Common sectors with companies already benefiting from the scheme include: Adhesives, Architecture, Construction, Design, Electronics, Engineering, Environmental, Food Manufacturing, Lighting, Medical, Packaging, Plastics, Printing, Software and IT and Textiles.

Yes, large companies can claim a Research and Development Expenditure Credit (RDEC) for working on R&D projects.

RDEC replaced the large company scheme in April 2016.

RDEC can also be claimed by small and medium-sized enterprises (SMEs) who have been subcontracted to do R&D work by a large company or who have received a grant or subsidy for their R&D project.

In April 2023, the government made changes to the rates applicable to both the SME R&D tax relief scheme and the Research and Development Expenditure Credit (RDEC).

For qualifying expenditure incurred prior to April 2023, the SME scheme allows you to deduct an extra 130% of qualifying costs from your yearly profits, as well as your normal 100% deduction, totalling 230%. If your company is making a loss, you can claim a tax credit worth up to 14.5% of the surrenderable loss.

For large companies, the Research and Development Expenditure Credit (RDEC) is a tax credit, and is 13% of your qualifying R&D expenditure.

For qualifying expenditure from April 2023, the SME scheme’s ‘additional deduction’ will decrease from 130% to 86% and the tax credit rate will reduce from 14.5% to 10%.

For large companies, the RDEC rate will increase from 13% to 20%.

You can claim SME R&D tax relief if you’re a company with:

• less than 500 staff
• a turnover of under 100 million euros or a balance sheet total under 86 million euros

You may need to include linked companies and partnerships when you work out if you’re a SME.

Unfortunately, it is unlikely you can claim if you are a sole trader. Sole traders do not pay UK Corporation Tax and, as a result, they cannot claim R&D tax credits. R&D tax credits are form of Corporation Tax relief and so — if you’re a sole trader — you’re not registered for UK Corporation Tax and cannot make a claim.

R&D tax relief can even be claimed on unsuccessful or aborted projects. Provided you have tried to or successfully overcome uncertainty, there’s a strong basis for a claim.

Unfortunately, the scheme is only applicable to limited companies. You must be a limited company and registered to pay corporation tax in the UK to receive R&D tax relief.

• Staff costs. You can claim the salaries of staff directly involved with the R&D project
• Consumable items
• Software
• Prototypes
• Externally Provided Workers (EPWs)
• Subcontractors
• Research Contributions
• Clinical Trial Volunteer Costs

Costs that cannot be claimed for include:

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

The research and development (R&D) tax credit claim time limit is two years from the end of the accounting period the claim relates to. Before this period ends you must submit a claim for any qualifying expenditure that you’ve identified during that period.

HMRC aim to make payments within 4 to 6 weeks for SMEs claiming research and development (R&D) tax credits.

R&D is a Corporation Tax (CT) tax relief that may reduce your company’s tax bill if your company is liable for CT or, in some circumstances, you may receive a payable tax credit.

Our technical specialists do all the work that goes into claiming R&D tax credits so that you don’t have to. We know your time is precious, so in asking the right questions to assess your eligibility to claim, we make the process as easy as possible.

We would love to find out more about your business and how we might be able to help you compile a Research and Development tax claim. Please contact us today to book a consultation with our team.

Following the review of R&D tax reliefs launched at Budget 2021, the government announced the following measures, which will generally apply for accounting periods beginning on or after 1 April 2023:

• Extending qualifying expenditure
• Tackling abuse and improving compliance
• Measures to address anomalies and unforeseen consequences

For full information on these measures please read our news article: 2023 Changes to R&D Tax Relief: Explained