Your Ultimate Guide to R&D Tax Credits

We’ve created a simple, easy-to-understand guide to help you find out if your business qualifies for these valuable benefits.

What’s Inside:

  • A Clear Explanation of R&D Tax Credits
  • Current R&D Tax Rates
  • Which Projects Qualify
  • What Expenses Can Be Claimed?
  • Step-by-Step Guide to Claiming R&D Tax Credits
  • How Much Can a Profit-Making SME Claim?
  • How Much Can a Loss-Making SME Claim?
  • Special Rates for R&D-Intensive SMEs
  • Claiming for Large Companies
  • R&D Tax Credit Calculator
  • Success Stories from Our Clients
  • Our 23 Years of Expertise
  • Full Support for HMRC Enquiries
  • Frequently Asked Questions
  • Book a Meeting with Our Experts

Let us simplify the R&D tax credit process and unlock valuable savings for your business!

What Are R&D Tax Credits?

R&D tax credits are a government incentive designed to reward businesses for investing in innovation. They allow companies to reduce their Corporation Tax bills or even receive a cash refund based on research and development (R&D) projects.

Since 2000, the UK government has been supporting both SMEs and large companies with this incentive to fuel innovation. Depending on your R&D expenditure, the tax credit can cover up to 27% of your costs.

Are You Eligible for R&D Tax Credits? To qualify, your business must:

  • Be registered for Corporation Tax in the UK.
  • Be operational (a “going concern”) when submitting your claim.
  • Have paid all expenses related to your R&D from the relevant accounting period.

If you meet these criteria and have at least one qualifying project, you’re on your way to making a claim!

Important for First-Time or Lapsed Claimants If you’re claiming for the first time, or if it’s been more than three years since your last claim, you must inform HMRC of your intention to claim within six months after your accounting period ends.

What’s Needed to Claim? To ensure you receive the full benefit of R&D tax credits, you’ll need to provide:

  • Expertise in filing your claim.
  • An R&D technical report.
  • A detailed breakdown of the costs involved in your projects.

With the right approach, claiming R&D tax credits can be a powerful tool for reinvesting in your business’s growth.

What projects qualify for R&D tax credits?

To qualify for R&D tax relief, a project must meet two key criteria:

  1. The activities undertaken must be challenging and uncertainty on the outcome 
  2. Professional competent in the field must be involved in the project

Additionally, the project must not fall within the fields of social sciences, arts, humanities, or economics.

An advance can involve creating a new product, service, or process, or enhancing an existing one.

For example, a company working on an IT project that develops a new method for extracting a specific type of data, where the company’s software experts cannot easily determine how to achieve it, may qualify for R&D relief.

Conversely, developing a new website would not qualify, as it doesn’t contribute to technological advancement and a software expert could implement it without difficulty.

What expenses can you claim?

You can claim tax relief on costs that have been recorded in your Profit & Loss account. In some cases, capitalised expenses can also be claimed, as long as the assets are classified as Intangible Assets.

Here are the key costs that can be claimed:

  • Staff and Director Costs
  • Agency workers (externally provided staff)
  • Subcontractors and freelancers
  • Software licence fees
  • Cloud computing and data licences
  • Consumables (such as utilities like heat, light, and power, as well as materials and equipment used or transformed in the R&D process)

How much is an R&D Tax Credit claim worth to a profit-making SME?

For profit-making SMEs, R&D tax relief allows you to reduce your corporation tax by claiming an enhanced deduction on your R&D expenditure.

  • For expenses incurred up to 31st March 2023, the enhanced deduction rate is 130%, offering a tax benefit of up to 24.7% of R&D costs.
  • For expenditures from 1st April 2023, the rate is 86%, resulting in a benefit of up to 21.5%.

If the enhanced deduction exceeds your profits, it will create a loss for corporation tax purposes, which can be carried forward.

How much is an R&D Tax Credit claim worth to a loss-making SME?

If your enhanced R&D deduction exceeds your taxable profit, it creates a loss for corporation tax purposes. As a loss-making SME, you have three options:

  1. Carry back the loss to the previous accounting period (if there was a taxable profit).
  2. Carry it forward to offset against future profits.
  3. Surrender the loss (fully or partially) to HMRC in exchange for a payable R&D tax credit.

Your R&D tax claim will be submitted alongside your Company Tax Return.

What are the rates for R&D-intensive SMEs?

For SMEs that focus heavily on R&D, a higher tax credit rate is available. These companies can benefit from enhanced relief, offering a tax credit of 14.5%. To qualify for this enhanced R&D support, your business must:

  • Be an SME
  • Report a trading loss for tax purposes before applying relief
  • Meet the R&D intensity condition:
  • At least 40% of your expenditure is on R&D (for costs incurred on or after 1 April 2023)
  • At least 30% for accounting periods starting on or after 1 April 2024

Additionally, the government provides a one-year grace period for companies that miss the intensity threshold. If a company qualified for enhanced support in the previous year, it can still claim the higher relief rate for one more year, even if it fails to meet the threshold. This grace period applies to accounting periods starting on or after 1 April 2024.

How much is an R&D Tax Credit claim worth to a large company?

The R&D Expenditure Credit (RDEC) is tailored for large companies and offers a different rate and tax treatment. Introduced on 1 April 2013, RDEC provides a taxable credit that companies can receive even if they have no corporation tax liability. However, since it is subject to corporation tax, the net benefit is the gross credit minus the applicable corporation tax rate for the claim period.

  • For expenditure before 31 March 2023, the gross RDEC rate is 10.5% of eligible R&D costs.
  • For expenditure from 1 April 2023, the gross RDEC rate increases to 20%.

Additionally, the amount of RDEC received in cash from HMRC is limited by the total PAYE/NIC liabilities paid for R&D staff.

Unmatched Expertise with a Zero-Risk Guarantee

At TaxTek, we offer more than just tax consultancy services. Our commitment to you is straightforward: we fully support our advice and guidance. If the R&D tax claim we prepare for you is challenged, we’ll defend it at no cost to you.

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  • Zero Financial Risk: At TaxTek, we defend your R&D tax claim at no extra cost, even up to the Completion of ADR.
  • Success Fee Only: As R&D tax specialists, we are so confident in our expertise that we operate on a success fee-only basis. You only pay when we secure your benefit.
  • Effortless Process: We handle your R&D tax claim from start to finish with minimal disruption to your team. Our streamlined process requires only a few hours of your time, allowing you to stay focused on running your business.
  • Maximised Claim Value: Our R&D tax experts go beyond the obvious, uncovering hidden qualifying projects and expenses to ensure your claim is optimised for the highest possible return.

R&D Tax Credits Calculator

SME SCHEME LARGE SCHEME
PROFIT-MAKING LOSS-MAKING
£0 £50,000 £100,000 £250,000 OTHER AMOUNT £0 £50,000 £100,000 £250,000 OTHER AMOUNT
We estimate you can save up to: £0.00

Contact our R&D tax specialists to make sure your R&D tax relief claim is fully maximised.

Common R&D Tax Credit FAQs

R&D Tax Credits are generally treated as either a reduction in corporation tax or, if there’s no tax liability, a cash payment. In financial statements, these credits can be recorded as a reduction in tax expense or as ‘other income’.

The deadline is generally two years from the end of the accounting period in which the R&D costs were incurred.

A project may qualify if it seeks to make an advance in fields of science or technology, and if there is uncertainty that a competent professional in the field would not easily resolve.

Late claims are typically not accepted. If you miss the two-year deadline, you may lose the opportunity to claim R&D tax relief for that period.

HMRC may conduct an inquiry if they need to verify the eligibility of your R&D claim, particularly if it is a first-time claim or involves high-value projects.

If a large company subcontracts R&D work to you, your eligibility depends on whether your company meets SME or large company R&D scheme criteria. Only SMEs can claim for subcontracted R&D under their scheme.

Receiving grants or subsidies may limit R&D tax credits available under the SME scheme, but you may still be eligible under the RDEC scheme for some or all of the project costs.

Software projects that solve technological challenges or create new functionality, improve efficiency, or innovate beyond readily available solutions generally qualify for R&D credits.

Projects that advance manufacturing processes, develop new products, improve production efficiency, or overcome technical challenges in engineering can often qualify.

The processing time usually ranges from six to eight weeks, but complex cases or first-time claims may take longer if additional information is required.

Qualifying costs include wages for R&D personnel, materials, software, and utilities used in R&D, as well as subcontracted and externally provided worker expenses if they are part of the R&D process.

Roles that are directly involved in R&D activities, such as engineers, scientists, software developers, and certain support staff (like quality assurance if integral to the R&D) can be included.

Yes, we can work directly with your accountants or auditors to ensure all R&D activities and expenses are correctly documented and reported.

Yes, we offer support throughout the inquiry process, providing all required documentation and explanations to HMRC to substantiate the claim.

An SME for R&D tax purposes is a company with fewer than 500 employees and either a turnover below €100 million or a balance sheet total under €86 million.

No, only companies liable to corporation tax can claim R&D Tax Credits. LLPs, however, can structure work through a limited company to benefit from R&D relief.

If you owe taxes, R&D Tax Credits may first be applied to reduce your debt before any remaining benefit is issued as a credit or refund.

Yes, a claim should include detailed documentation outlining eligible activities, costs, and the scientific or technological uncertainties addressed.

A competent professional is someone qualified in a relevant field, capable of identifying if the project involves real technical uncertainties.