R&D Tax Credits & Relief

R&D Tax Credits Explained

What are R&D Tax Credits?

The R&D Tax Credit scheme is a UK government incentive introduced in 2000 to promote innovation through research and development. Since the inception of the scheme in 2000 over £26 billion has been claimed and it is growing year on year.

You are able to make a claim in your CT600 and you support this by sending an R&D report to HMRC, which they aim to process the claims in 40 days. You are allowed to claim for the previous two accounting periods. Once you pass the deadline it is gone and you can never get it back. You can make a claim even if the project failed and you can potentially claim back 20% of qualifying expenditure.
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To be eligible there is a shortlist of qualifying criteria:

• Be a UK limited company
• Be subject to normal UK corporation tax
• Have spent money on qualifying R&D

What is Qualifying R&D?

2. Technological Uncertainty

There must be uncertainty that a competent professional in the field cannot easily resolve. This often involves trial and error, multiple iterations, and extensive research to find a solution.

3. Science or Technology

The work must seek to advance science or technology. HMRC does not consider projects within the arts, humanities, or social sciences as eligible. Simply being “commercially innovative” is not sufficient.

4. Competent Professional

The R&D must be led by someone with the necessary expertise in the relevant scientific or technological field. This can be demonstrated through qualifications or significant industry experience.

What is

Employee Costs

You can claim for salaries, wages, Class 1 NICs, and pension fund contributions for staff engaged in the R&D project. Salaried directors and a fair proportion of indirect supporting staff may also qualify. In some cases, employee expenses can also be eligible.

Subcontractors and EPWs

You can claim 65% of the costs for subcontracted R&D or externally provided workers involved in the R&D project. However, subcontractors are not eligible under the RDEC scheme.

Software Costs

You can claim for the cost of software used directly in R&D, as well as a fair proportion of software that is only partially used for R&D purposes.

Consumable Costs

You can claim the cost of materials and a proportion of water, fuel, and power consumed during the R&D process. This includes prototypes, provided they are not sold. Heating and lighting are also eligible if charged separately from rent.

What isn’t

Capital Expenditure

Capital expenditure is not eligible. However, a generous 100% Research and Development Allowance may apply to capital assets such as plant, machinery, and buildings used in R&D activity.

Patent Costs

Patent costs are not eligible under the R&D scheme. However, you may be able to reduce your corporation tax by up to 9% on qualifying IP-related profits through the patent box scheme.

Rent or Land

Rent, business rates, and land costs are not eligible. However, heating and lighting may be eligible if they are charged separately from the rent.

Production or Distribution

The cost of producing or distributing goods and services is not considered eligible expenditure under the R&D scheme.