What is R&D tax relief?
The UK Government introduced research and development (R&D) tax relief in the year 2000 to encourage scientific and technological innovation within the UK.
R&D tax relief is an excellent opportunity for UK businesses to receive tax incentives when they invest in research and development. The scheme rewards past R&D spending whilst also encouraging future investment, directly benefiting industry and the UK economy.
Could R&D tax credits benefit my business?
If your business invests significant amounts of time, money, and resources in developing or improving products, processes, or services, you might be entitled to receive an R&D tax benefit.
Where eligible, you can file an R&D tax relief claim each year. The benefit is calculated as a percentage of your qualifying expenditure, i.e., how much you have spent on activities considered “R&D for tax purposes” that year. More information regarding the types of activities that qualify for tax relief is provided below.
If your company is profitable, you can use your claim to reduce your company’s tax bill to a greater extent than standard deductions. In the event that your company may be facing losses (i.e., it does not owe any tax for that year), there are still advantages to claiming. You may be given the benefit of additional losses that can be carried over into future tax years, or the losses could be surrendered for an immediate cash benefit – a ‘tax credit’.
Who is eligible to claim R&D tax credits?
In order to make an R&D claim, there are some basic eligibility criteria that your business must meet:
- Your business must be subject to UK Corporation Tax – this typically means that it is registered in the UK as a Limited business.
- You must be performing Research & Development (R&D)
- You must have spent money on this R&D.
In addition, your activities must meet two main criteria from HMRC in order to be considered ‘R&D for tax purposes’:
Which scheme is right for my business?
There are two main types of R&D relief – the Small and Medium sized Enterprises (SME) R&D Relief and the Research and Development Expenditure Credit (RDEC). Deciding which scheme is right for you is largely dependent on the size of your business, but there are other factors that need to be taken into account.
You are eligible for the R&D tax credits SME scheme if you have less than 500 employees in your company and/or group and less than £100m turnover. SME R&D relief allows companies to:
- deduct an extra 130% of their qualifying costs from their yearly profit, as well as the normal 100% deduction, to make a total 230% deduction
- claim a tax credit if the company is loss making, worth up to 14.5% of the surrenderable loss
Note: For expenditure incurred on or after 1 April 2023 the enhancement rate reduced to 86% (from 130%) and the tax credit rate reduced to 10% (from 14.5%). There is an exception for R&D intensive companies who can continue to claim a tax credit at 14.5%.
You are eligible for the R&D tax credits RDEC scheme (formally Large Company Scheme) if you have over 500 employees in your company or group, or more than £100m turnover.
It can also be claimed by SMEs and large companies who have been subcontracted to do R&D work by a large company.
The Research and Development Expenditure Credit (RDEC) rate has increased over the years so that currently companies can get over 10% of their R&D spending refunded.
Note: For expenditure incurred on or after 1 April 2023 the RDEC scheme has become more generous. Companies who claim under the RDEC scheme can now get up to 15% of their R&D spending refunded.
What costs can be included in an R&D claim?
Irrespective of what industry or sector you are, we can help you identify eligible activities for R&D for tax purposes. From 1 April 2023, the government is extending the scope of qualifying expenditure to include data & cloud computing costs. To find out more please click here.
Are R&D tax credits available to companies in my sector?
We find that companies from a wide range of industries and sectors have the potential to claim UK R&D tax relief. Follow the link below to find out more.
Frequently asked questions
If you have further questions about making an R&D tax relief claim, please visit our Question Hub or contact our team who will be happy to advise you.
A Complete Guide to R&D Tax Credit Claims
