R&D tax relief FAQs

R&D is a corporation tax relief, designed to reduce your company’s tax liability if you pay corporation tax. In certain circumstances, you may receive a tax credit (cash repayment).

You should consider an R&D claim if your company is creating a product, process, service, or material that is an improvement on what is already available and involves the use of science or technology.

HMRC is agnostic as to what industry / sector the claimant company operates in. Instead, they are interested in the underlying nature of the activities you undertake, ensuring they meet the R&D definition set out within the Department for Business, Energy & Industrial Strategy guidelines. In summary, any company is able to make an R&D tax relief claim, regardless of its industry / sector, provided it has undertaken qualifying activities, and has incurred qualifying expenditure.

There are four key reasons:

1. The relief can lead to cash repayments from HMRC.
2. For accounting periods beginning on/after 1 April 2024, the relief remains significant with eligible companies able to claim repayments of up to 16.2% and 27% of the qualifying expenditure identified under the merged scheme and the SME intensive scheme respectively.
3. Conditions have changed recently – a claim that was not possible previously may be possible now and vice versa. If you have looked at the relief in the past and decided against claiming you should take another look.
4. Whilst there has been an increase in claims in recent years, many eligible companies have not maximised the opportunity. If a competitor is claiming relief but you’re not, you’re placing yourself at a competitive disadvantage.

You can claim R&D tax relief through the corporation tax return (CT600) of your company. Specifically, the CT600L is a four-page supplementary form at you should submit with your corporation tax return when making an R&D claim.

This can be done in an original return or through an amendment to a previously filed return. In addition, for all R&D claims submitted on/after 8 August 2023, there has been a requirement to submit a detailed additional information form to HMRC to support R&D claim submissions.

If this is not submitted prior to the submission of the R&D claim, the claim will not be accepted by HMRC. Furthermore, for accounting periods beginning on / after 1 April 2023 there is an additional compliance requirement to provide HMRC with a claim notification form within six months of the ends of the accounting period. A company must submit the form if it has not made an R&D claim previously, or if its last claim was made more than three years before the last date of the claim notification period.

Subject to the claim notification requirement mentioned above (applicable for accounting periods beginning on / after 1 April 2023), companies are able to go back and submit an R&D claim two years following the end of the relevant accounting period.

For example, a claim for the period ended 31 December 2022 needs to be submitted to HMRC on / before 31 December 2024. If you don’t meet this deadline, or you do not meet the claim notification form deadline (six months following the ends of the relevant accounting period), the opportunity to make a claim for the relevant period will pass.

HMRC aims to process 80% of R&D claims, including making the corresponding payment, within 40 days from the submission of the tax relief claim and the Additional Information Form.

Yes – HMRC has the right to charge a penalty, based on the corporation tax loss, for an incorrect R&D tax relief claim. The ability to charge a penalty is dealt with under the normal corporation tax self-assessment penalty regime in so far as the severity of the penalty will depend on the behaviour (i.e., careless, deliberate but not concealed, and deliberate and concealed) of the taxpayer.

The R&D relief is only available to companies who are spending money on qualifying activities. So, even if you’re not making profit and / or not retaining the intellectual property developed, you could still qualify.

Find out if your business could be eligible. Take our quick, online self-assessment. Our team will review your position and let you know if you could qualify.

Your company is likely to qualify for R&D if it has undertaken a project that is;

1. aiming to achieve an advance in science or technology,
2. working to resolve scientific or technological uncertainty, and
3. the solution is not easily found by someone competent in the field. In summary, if experienced people in the field have to spend a significant amount of time and effort, the costs associated with the work required to solve the problem could qualify for R&D tax relief.

Qualifying expenditure under the MRDEC scheme includes staffing costs, software and consumable items, contracted out R&D, expenditure on externally provided workers, payments subject to clinical trials, and cloud computing and data storage costs.

From April 2023, the SME scheme provides companies with a benefit of up to 21.5 pence in the pound (£) of the qualifying expenditure incurred on qualifying activities where a tax refund is claimed. The specific benefit will depend on your corporation tax position, and whether your company is profi5 or loss making. The rate of relief may vary if the corporation tax rate changes.

From April 2023, the RDEC scheme provides companies with a taxable credit of 20%. After tax at 25%, this means companies are able to claim back up to 15 pence in the pound of the qualifying expenditure incurred on qualifying activities. The rate of relief may vary if the corporation tax rate changes.

The MRDEC scheme is a taxable credit (20% of the qualifying expenditure) and can be claimed by eligible trading companies within the charge to UK corporation tax.

The calculation and payment steps of the MRDEC scheme are broadly the same as those of the old RDEC scheme, but with two main differences:

1. A lower rate (19%) of notional corporation tax (step 2) is available for small-profit- and loss-making businesses (defined as companies with total profits chargeable to corporation tax of less that £50,000, excluding the RDEC claimed).
2. A more generous PAYE cap (i.e., £20,000 plus 300% of the companies relevant PAYE and NIC liabilities) applies.

Depending on the wider corporation tax position of the claimant company, the MRDEC scheme could provide a case benefit of up to 16.2p for every pound of expenditure identified.

The ERIS is designed to support loss making R&D intensive SMEs by allowing them to claim under a regime that is more advantageous than those available for larger or less R&D-intensive businesses.

The calculation and payment steps of the ERIS are broadly the same as those of the old SME scheme. For example, the claimant company will revive an enhanced R&D deduction equal to 86% of its qualifying expenditure, and will be able to surrender its relevant losses for a payable tax credit at 14.5%

Depending on the wider corporation tax position of the claimant company, the ERIS scheme could provide a cash benefit of up to 27p for every pound of expenditure incurred.

To be regarded as a loss making R&D intensive SME, and therefore eligible to claim under the ERIS scheme, a company must:

1. Meet the SME definition (see separate FAQ question).
2. For accounting periods beginning on or after 1 April 2024, have qualifying R&D expenditure that covers at least 30% of its total spend in the given accounting period
3. Be loss making in the relevant accounting period.

The table below provides an overview of the different R&D regimes, including the benefits of claiming under each regime:

For accounting periods beginning on / after 1 April 2021, companies making a claim under the SME regime need to consider the cap for R&D payments. The amount of R&D payments that an SME can receive in the relevant period will be capped at £20,000 plus 300% of the company’s total Pay As You Earn (PAYE) and National Insurance Contributions (NICs) for the period.

Companies that:

1. Have employees that are creating or managing Intellectual Property, and
2. Do not spend more than 15% of their R&D expenditure on subcontracted R&D to connected parties, or on connected externally provided workers, are not subject to the cap. This version of the R&D cap has also been incorporated into the merged and ERIS legislation.

For R&D purposes, a company is regarded as an SME where it, together with any connected companies, has fewer than 500 employees and where one of the following criteria is met: (a) an annual turnover not exceeding 100 million euros; or (b) a balance sheet total not exceeding 86 million euros. This is a simple test to apply for single companies that are independent of other enterprises. However, the considerations become more complex when other dependent / connected / associated enterprises are involved.

If your company meets the SME definition (see separate FAQ for definition), you may be able to make a claim under the SME regime. If the SME criteria are breached, you can only make an R&D tax relief claim under the RDEC regime. There are three circumstances in which an SME may have to claim under the RDEC scheme for SMEs. These are where:

1. The R&D was subcontracted to the company by another party.
2. The expenditure was subsidised by another party, or
3. The SME cap for R&D expenditure has been exceeded.

For accounting periods beginning on / after 1 April 2024, all companies will claim under the Merged R&D regime, unless they satisfy the definition of a loss-making R&D intensive SME company (see separate FAQ for definition).

Research and Development Allowances are a form of capital allowance designed to enable companies to obtain a 100% corporation tax deduction for qualifying R&D capital expenditure. RDAs are available for all types of expenditure, including buildings, with the exception of land. Given the complexities around capital allowance rules (i.e., super deduction and AIA), we recommend that you request a detailed analysis to ensure the interaction between all the different capital allowances is considered, and an optimal filing position is submitted.

Patent Box relief (applying a 10% corporation tax rate to qualifying patent profits) is designed to work alongside the R&D tax reliefs to incentivise companies to keep their Intellectual Property in the UK after it has been developed. There are specific rules that ‘carve out’ the benefit from the R&D tax relief when calculating the Patent Box relief. This means that the benefit of the Patent Box is not reduced by a claim for R&D tax relief, and vice versa.

I don’t see the answer to my question, who can I contact for more information?

If you haven’t found the answer to your question in our handy R&D FAQs, don’t hesitate to get in touch. Our team have the experience and expertise to help with any R&D tax query and are happy to discuss your specific circumstances. Just send us an email via the button below and one of our team will get in touch.