Here are some questions that we often get asked about claiming R&D tax credits.
In the UK companies are able to claim tax relief for their R&D activity. The Research and Development Expenditure Credit (RDEC) is a tax incentive administered by HMRC granted under the Corporation Tax Act 2009, Part 13. This allows UK limited companies to claim a tax credit for activities deemed as research and development. This government incentive is designed to boost innovation by supporting businesses that seek to improve or overcome challenges and uncertainties in their products and processes.
To know if your R&D activity qualifies for tax relief, the Department of Science, Innovation and Technology (DSIT) Guidelines must be satisfied.
Fundamentally to be qualifying activity your R&D must:
Seek an Advance
The project must aim to increase overall knowledge or capability in the specific field of science and technology, including pure math. The advance cannot just be for your company alone.
And
Overcome Uncertainty
The activity must overcome challenges that are not readily deducible by a competent professional.
The proof points that will help satisfy HMRC that the guidance has been met include.
The R&D expenditure credit (RDEC) scheme, which merges the previous SME and RDEC schemes, applies for accounting periods starting on or after 1 April 2024. It applies to both SMEs and large businesses who now claim under the same scheme and at the same above-the-line credit rate of 20%.
Against a concern that the merged scheme could negatively impact the most innovative SMEs, there is a second ‘scheme’ or ‘rate’ for loss-making R&D-intensive businesses, called the Enhanced R&D Intensive Support (ERIS) scheme. The ERIS rate equates to a credit rate of up to 27% and an ‘intensive’ SME is defined as an SME whose qualifying R&D expenditure represents 30% or more of their total expenditure.
To see which scheme applies to your business, use our calculator below.
There has been a raft of rule and rate changes that have impacted R&D tax relief. Our easy-to-use calculator will estimate your rate with answers to a few simple questions.
A company can claim against certain costs that are allowable for tax purposes on the project including:
Only in very limited circumstances can overseas costs of third parties (EPWs and Subcontractors) of any kind be included in the claim. To include overseas costs three conditions must be satisfied:
The availability and cost of resource in the UK are not justifications to include overseas costs in qualifying expenditure.
Under the merged RDEC scheme the company contracting out the R&D would be the entity eligible to claim R&D relief, rather than the contractor (in most cases).
This principle allows the company that makes the decision to undertake the R&D and bears the financial risk to claim the R&D tax relief. However, there may be circumstances where contractors are eligible to claim R&D tax relief.
For the contractor to be eligible to claim relief for contracted-out R&D costs, it must meet a three-step test:
To establish who is eligible to make a tax relief claim for contracted-out R&D, use our eligibility checker.
A claim for RDEC is made via the CT600 and CT600L supplementary form and must include the submission of an Additional Information Form detailing the R&D projects.
Companies claim R&D tax relief by entering the total qualifying expenditure on the full Company Tax Return form, CT600. Tax relief is given as either a reduction in the tax liability or, if the company is loss-making, a refundable tax credit payable as cash on the amount of qualifying R&D expenditure.
To make sure you can claim, businesses have to be aware of and comply with strict deadlines. The requirements of each step can change so having a deep understanding of the requirements at each stage is critical to making a successful claim.
All R&D tax relief claims must be submitted within 2 years of the end of the accounting period to which they relate.
In an increasing number of R&D tax relief claims, HMRC will ask for more information and an enquiry is raised. An inspector will ask questions to better understand the R&D and the costs claimed. If you have a robust claim then this should withstand this extra scrutiny and you or your advisor should be able to answer HMRC’s questions. But if not then it can affect the value of your claim and in some cases, penalties are applied. An enquiry might mean your R&D tax relief may be delayed but HMRC can raise an enquiry even if you have received the benefit.
Learn more about our HMRC R&D enquiry support service.
Areas of qualifying activity may include:
No, the company can be in a loss position. These losses can then be utilised (i.e. not carried forward for tax relief in the future) and the company receive an R&D cash refund, without paying any corporation tax.
R&D tax relief may reduce your company’s tax bill if your company is liable for corporation tax or, if you make a loss, you may be able to surrender this loss and claim a tax credit. The R&D schemes enables companies with no corporation tax liability to benefit through a cash payment or a reduction of tax.
HMRC may open an R&D enquiry, firstly they will request further evidence, this could be Technical or Financial, often both.
Once the questions from HMRC have been addressed, HMRC may conclude either, that there is no qualifying R&D activity and request the claim is withdrawn, or if they agree that there is some qualifying R&D activity but this is not represented by the costs claimed, they will reduce the R&D claim to fairly reflect the qualifying R&D activities undertaken by the company.
As a Source Advisors customer if you face an HMRC enquiry we will defend it on your behalf at no extra charge.
The project must have achieved, or is seeking to achieve, an advance in the overall knowledge or capability of a field of science and technology, including pure math.
This is not just an advance for your company alone.
There must have been a scientific or technological uncertainty, that is not readily deducible to a competent professional working in the field.
A competent professional in the field can judge if a scientific or technological advance is needed to solve a particular problem. A competent professional who is suitably qualified in the field of the advance, will likely be an internal member of the team but they may be external. The qualification and opinion of a competent professional is always the foundation of a compliant and robust R&D tax relief claim and highlighting their knowledge in the field relevant to the R&D strengthens the claim.
Learn more about evidencing the role of a competent professional.
Establishing a baseline defines what knowledge, state of art, and known solutions were publicly known at the start of any R&D project. Learn more about evidencing a baseline for HMRC.
To qualify for the Enhanced R&D Intensive Support Scheme companies will need to be:
Learn more about the Enhanced R&D Intensive Support scheme for SMEs.
For accounting periods starting prior to 1 April 2024, there were two different schemes: one for large companies and one for SMEs. These are now merged into the RDEC scheme and special arrangements for R&D intensive SMEs under ERIS.
If you are making a claim for accounting periods prior to 1 April 2024 you can find more about the older RDEC scheme and SME scheme.
