Research and development

Research & Development Tax Services – Our Guide

The R&D Tax Relief Scheme is a government initiative designed to encourage innovation and boost business growth. R&D Tax Relief is a government scheme meant to reward innovation, yet many businesses that could claim never do.

When you invest in research and development activities, you can recover up to 33% of your costs through R&D tax credits.

Working with R&D tax specialists ensures you get the most from your claim whilst staying compliant with HMRC requirements. From software development to engineering improvements, qualifying activities cover virtually all industries. The benefits can transform your cash flow and fund future innovation, creating a positive cycle for your business growth.

R&D for Tax Purposes

R&D for tax purposes has a specific meaning that’s different from everyday use of the term. Research and Development tax relief supports companies working on innovative science and technology projects.

To qualify, your work must seek to achieve an advance in science or technology through the resolution of scientific or technological uncertainties. This doesn’t necessarily mean inventing something completely new – improving existing products or processes can also qualify.

HMRC looks for projects that:

• Attempt to overcome technical challenges
• Couldn’t be easily worked out by a professional in the field
• Involve experimentation or testing

The work must relate to your company’s trade, either existing or intended. Software development, engineering innovations, and new manufacturing processes often qualify.

R&D Tax Credits Eligibility Criteria

Understanding who can claim R&D tax relief requires knowledge of specific qualifying conditions. The UK government offers this incentive to businesses pushing scientific or technological boundaries, but eligibility depends on several key factors.

Qualifying Industries and Activities

R&D tax relief is available across virtually all sectors—not just laboratories and tech companies. To qualify, your project must seek an advance in science or technology by resolving scientific or technological uncertainty. This means you’re trying to create something that isn’t easily deducible by a professional in your field.

Qualifying activities typically include:

• Creating new products, processes or services
• Modifying existing technologies in non-obvious ways
• Developing bespoke solutions to industry challenges

The work must involve uncertainty where the solution isn’t readily apparent. Failed projects can still qualify if the attempt involved systematic investigation.

Your R&D doesn’t need to be revolutionary for the entire industry—innovation within your company can be sufficient if it represents genuine technological advancement.

What Constitutes Innovation for Tax Credits?

For R&D tax purposes, innovation has a specific definition. Your work qualifies when it involves overcoming scientific or technological uncertainties rather than just commercial or financial risks.

Key indicators of qualifying innovation include:

• Problems that competent professionals can’t readily solve
• Solutions requiring systematic research or investigation
• Technical challenges without obvious solutions

It’s important to note that routine development using existing technologies typically doesn’t qualify. The innovation must involve pushing boundaries beyond current industry knowledge.

Activities like testing prototypes, developing algorithms, or creating new materials often qualify. Even improving existing systems can count if it involves overcoming significant technical challenges.

Calculation of R&D Tax Credits

Understanding how R&D tax credits are calculated helps businesses maximise their claims and plan their finances effectively. The calculation involves identifying qualifying expenditure, determining the impact on your company’s tax position, and considering capital allowances.

Determining Qualifying Expenditure

Qualifying expenditure forms the foundation of your R&D tax credit calculation. For SMEs, you can claim up to 230% of qualifying costs, while large companies claim under the RDEC scheme at a rate of 13% for expenditure incurred after 1 April 2020.

Eligible costs typically include:

• Staff costs (salaries, employer’s NI, pension contributions)
• Subcontractor and external worker expenses
• Consumable items (materials used or transformed during R&D)
• Software licences
• Utilities directly related to R&D activities

Capital Allowance and R&D Tax Credits

Capital allowances and R&D tax credits can work together to maximise your tax relief. While most R&D claims focus on revenue expenditure, capital expenditure on R&D can qualify for Research and Development Allowances (RDAs).

RDAs provide 100% first-year tax relief on capital assets used for R&D activities. This includes:

• Laboratory equipment
• Testing facilities
• Specialised manufacturing equipment for R&D
• Buildings dedicated to R&D (in certain circumstances)

Unlike regular capital allowances, RDAs can be claimed immediately rather than over several years. This accelerated relief improves cash flow and provides additional benefits alongside your R&D tax credits claim.

It’s important to clearly separate capital and revenue expenditure in your R&D accounting to ensure you optimise both types of relief and avoid double-counting any expenses.

Claiming Process for R&D Tax Credits

The R&D tax credit claiming process involves specific documentation requirements and adherence to HMRC timelines. Understanding both the compliance aspects and submission periods is essential for a successful claim.

Documentation and Compliance Requirements

When claiming R&D tax credits, proper documentation is critical for HMRC approval. You must clearly demonstrate how your projects qualify as genuine R&D activities that seek an advance in a field of science or technology.

Your documentation should include:

• Technical narratives explaining the scientific or technological uncertainties faced
• Detailed records of staff time allocated to R&D work
• Financial information separating R&D expenditure from regular business costs
• Project timelines showing the R&D process from start to completion

Since January 2024, if your company is claiming for the first time, you must submit an advance notification form to HMRC. This notification must be made before you submit your actual R&D claim.

Accounting Periods and Claim Submission

You must submit your R&D tax relief claim within two years from the end of your accounting period. For example, if your accounting period ends 31 March 2025, you have until 31 March 2027 to file your claim.

The claim process typically follows these steps:

• Initial assessment to determine eligibility
• Information gathering and technical analysis
• Claim preparation with financial calculations
• Submission to HMRC with your Corporation Tax return

HMRC currently aims to process R&D tax credit applications within 40 working days, though complex claims may take longer. For SMEs who undertake subcontracted or subsidised research, you may still be able to claim under the RDEC scheme even if you don’t qualify for SME R&D relief.

It’s advisable to maintain ongoing records throughout the year rather than retrospectively gathering information at year-end.

Get in touch for R&D support.