Summary
R&D Tax Credits let UK limited companies reduce their corporation tax bill — or receive a cash credit from HMRC — based on qualifying research and development expenditure. From April 2024, a merged scheme applies with a 20% above-the-line credit rate for most companies. You can look back two accounting periods to claim.
What Are R&D Tax Credits?
R&D Tax Credits (Research and Development Tax Relief) are a UK government incentive designed to encourage investment in innovation. They allow companies to claim a tax credit — or an enhanced deduction — on qualifying R&D expenditure, reducing their corporation tax liability or, if they are loss-making, receiving a cash payment from HMRC.
Despite the name, you do not need to be running a formal research programme or working in a laboratory. Companies across software, engineering, construction, food manufacturing, and professional services have successfully claimed — often for work their teams considered "just problem-solving".
The scheme is administered by HMRC through the corporation tax return (CT600). Claims must be based on accurately identified qualifying costs and supported by a technical narrative — the area where most unsuccessful or disputed claims fall short.
The Merged Scheme (April 2024 Onwards)
HMRC merged the previous SME R&D Relief and RDEC (R&D Expenditure Credit) schemes from 1 April 2024. Most UK companies now claim under the merged scheme.
| Company Type | Scheme | Effective Benefit |
|---|---|---|
| Most SMEs and large companies | Merged RDEC | 20% above-the-line credit on qualifying expenditure (net ~15% after 25% CT) |
| R&D intensive SMEs (qualifying R&D spend ≥30% of total costs) | Enhanced R&D Intensive Support (ERIS) | Higher rate — 27% credit (net ~20% after CT) |
The credit is treated as taxable income (hence "above-the-line"), but the net benefit after corporation tax is material — typically £15,000–£20,000 per £100,000 of qualifying expenditure for profitable companies. Loss-making companies can surrender the credit for a cash payment from HMRC.
What Qualifies as R&D?
HMRC applies the BEIS (Department for Business, Energy and Industrial Strategy) definition. Work qualifies as R&D if it:
Seeks an advance in science or technology
The work must aim to create new knowledge or capability in a field of science or technology — not just apply existing techniques in a new business context.
Involves overcoming scientific or technological uncertainty
There must be genuine uncertainty about whether something can be done, or how to do it, that could not easily be resolved by a competent professional in the field.
Involves systematic investigation
The work must involve a structured process of experimentation or prototyping to resolve the uncertainty — not just trial-and-error or following an established method.
Common qualifying activities include: building new software architecture that no off-the-shelf product can replicate, developing novel manufacturing processes, creating new material formulations, and designing bespoke engineering solutions with no established precedent.
Qualifying Costs You Can Claim
Not all business costs are eligible — only those directly connected to the R&D activity:
Staff costs
Salaries, employer NICs, and pension contributions for employees directly engaged in R&D — apportioned if they spend part of their time on non-R&D work
Subcontractors
65% of payments to unconnected subcontractors engaged in the qualifying R&D (full cost for connected party subcontractors, subject to rules)
Consumables
Materials, utilities, and other consumables used and transformed in the R&D process — not durable assets
Software licences
Licence costs for software directly used in the R&D project — e.g. simulation software, development tools, cloud computing costs
Cloud computing
Qualifying expenditure on cloud compute and storage directly used for R&D (introduced April 2023)
Trials and tests
Costs of independent testing, prototype production, and data collection required to advance the R&D project
The Claim Process and HMRC's Increased Scrutiny
Since 2023, HMRC has significantly tightened its approach to R&D claims, issuing more enquiries and rejecting claims that lack a robust technical narrative. Key requirements introduced since August 2023:
A poorly written technical narrative is the most common reason for HMRC enquiries. We prepare the Additional Information Form and full technical narrative as part of our R&D claims service, drawing on direct conversations with your technical team to document the qualifying projects accurately.
How Much Could You Claim?
Claim size depends on your qualifying expenditure and tax position. Broadly, for every £100,000 of qualifying staff and other costs:
- →Profitable company (merged scheme): approximately £15,000 reduction in corporation tax (20% credit × 75% retained after 25% CT)
- →Loss-making R&D intensive SME (ERIS): approximately £27,000 payable credit surrendered for cash
- →Prior years (pre-April 2024 SME scheme): up to £33,350 in enhanced deduction, or 10%/14.5% cash credit for loss-making companies
If your company has been innovating for the past two years and never claimed, you may have significant unclaimed relief available. We identify it, quantify it, and submit the claim correctly — so it stands up to scrutiny. Book a free consultation to find out if you qualify.