Innovation is at the core of any successful business. It enables businesses to evolve and adapt to ever-changing markets, regulations, and the sector in which they are operating within. But pursuing cutting-edge projects can come with substantial cost and risk. Research and development (R&D) tax credits (formerly R&D tax relief) can remedy this issue, accessing vital funding and getting cash back into a business.
Whether you’re a tech start-up, an established manufacturing company, or sit within the construction field, this guide explains how businesses can utilise the R&D tax credit scheme to advance their goals and secure non-dilutive funding. We’ll break down how the scheme works, outline eligible projects and cost categories, explain the relevant tax legislation and application process, and outline the importance of using a specialist provider.
R&D tax relief was launched in 2000 by the UK government and is administered by HMRC. The scheme is intended to encourage and incentivise innovation and reward companies that invest in R&D related projects to drive economic growth within the UK.
In essence, a business that participates in innovative projects can be provided with tax relief to encourage further investment in innovation. To give an indication of numbers, in the most recent statistics HMRC provided they shared that an estimated total of £7.6 billion of R&D tax relief was claimed in the tax year 2023-2024.
R&D tax credits allow businesses to reclaim a percentage of qualifying R&D expenditure either as a reduction in corporation tax liability or as a payable cash credit, depending on the company’s financial position and the scheme applied.
To make a claim, businesses must identify qualifying R&D projects and calculate the associated eligible expenditure. A claim is then submitted to HMRC as part of the company’s corporation tax return, alongside supporting technical and financial documentation explaining how the project meets HMRC’s criteria.
The amount a business can claim depends on:
Once processed by HMRC, the benefit is typically received either through reduced corporation tax, a cash repayment, or a combination of both.
R&D has a specific meaning when it comes to tax purposes. HMRC’s definition can be broken down into three distinct criteria:
Alongside the technical criteria, eligibility also depends on factors including if the company has submitted a Claim Notification Form (CNF)pre-informing HMRC of their intent to claim.
Any UK business that’s liable for corporation tax and whose project satisfies the above R&D criteria could be eligible for R&D tax credits.
That said, although R&D can happen in any business, the advance must be in the field of science or technology in order to qualify for R&D tax relief. R&D tax credits are industry agnostic but, as expected, a lot of R&D activity sits within sectors including manufacturing, technology, and defence.
HMRC also has guidance on what cannot be claimed, and explicitly states that advances cannot be claimed in the fields of arts, humanities and social sciences. If you’re unsure whether your business’s project qualifies, contact a member of our team.
There are five main categories of costs that are eligible for R&D tax relief, provided the costs relate directly to eligible R&D activities:
Read more about qualifying expenditure here.
There have been significant changes in the different incentives and rates of relief over the early 2020s. Previously, claims were made through two main schemes: Small and medium-sized enterprises (SMEs) and Research and Development Expenditure Credit(RDEC). But as of 1st April, these schemes merged into the R&D Merged Scheme. The main difference is primarily for SMEs and the rates they can claim. Outlined below are the different schemes currently in operation, and how much relief your business could be eligible to receive.
This is essentially a continuation of the old RDEC Scheme. Any business that qualifies for R&D credits can claim up to a limit of 15% on qualifying costs. This applies to large businesses, profit-making SMEs and loss-making SMEs who don’t meet other ERIS scheme criteria (outlined below). The merged scheme enables the addition of claiming subcontracting costs which the RDEC did not previously allow.
If you’re a loss-making SME that meets the R&D intensity threshold, you may qualify to claim under the ERIS scheme. Businesses meeting this criteria can claim up to 27% on qualifying R&D costs. This enhanced relief can provide significant support for smaller R&D rich businesses, making it important to work with an advisor who can help determine the most appropriate scheme to claim under.
Here at RCK Partners we believe process is protection which is why we have devised a robust, compliance-led, claim preparation and submission process. See below for a summarised version of the process and how businesses needs to prepare a claim to be ready for review:
For a more detailed explanation, read our guide to HMRC’s R&D claims process as well as frequently asked questions.
Alongside the changes in schemes, HMRC has introduced additional compliance measures and increased their scrutiny of R&D tax relief claims. In order to save both time and money, and ensure the compliance of your claim, working with the right R&D tax credit consultant is more important than ever.
As outlined, at RCK, our team comprises former HMRC inspectors, as well as industry experts educated up to PhD level in your sector. Our advisors have a specialist knowledge of your specific sectors, and can help you with the following:
R&D tax credits are an opportunity for businesses of all sizes and within a wide range of industries to secure additional funding for their businesses.
Get in touch for a discovery call to learn if your company is eligible for R&D tax relief. At RCK, we operate a contingency fee model and can audit existing previously prepared claims by other providers for compliance and value.
The benefit is received via a reduction to the business’s corporation tax liability or as a cash lump sum.
It is likely that your accountant will already provide R&D tax relief services. However, we often see that accountants are often not capturing all eligible projects or expenditure and are therefore not claiming the full benefit clients are entitled to.
R&D tax credits are complex and require specialist expertise. Here at RCK, we have assembled a technical team from a wide range of industries and backgrounds. We are experienced in reassessing claims processed by accountants and other providers. We work on a contingency basis. If there is no saving you get a complimentary and accurate evaluation of your R&D tax status, with peace of mind that you are claiming the amount that you are entitled to.
The claim process is typically anywhere between 4 and 8 weeks. We would require a series of calls with the competent professionals within the business and then time to complete the technical narrative and financial assessment and pass everything through our in-house compliance team. Learn more about HMRC’s process for processing R&D tax claims here, including timelines.
A practical guide to Research and Development Allowances (RDAs), including qualifying capital expenditure, laboratories, pilot plants, R&D facilities, interaction with R&D tax relief, and how businesses can maximise tax savings on innovation projects.
The classification of R&D subcontracting ownership remains a highly debated and complex aspect of R&D tax credit claims and has historically led to confusion among claimants. This article explains how to identify R&D ownership for tax purposes.
