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R&D Tax Credits Explained

Credits designed by the government to encourage investment and reward innovation in Research and Development.

Table of contents:

What are R&D Tax Credits?

R&D Tax Credits, introduced by the UK government in 2000, are designed to promote innovation by providing tax relief to companies engaged in scientific or technological advancements.

R&D for tax purposes involves projects aiming to achieve progress in these fields by resolving uncertainties. Qualifying activities include various forms of innovation and development.

By claiming back a portion of their R&D expenditure, businesses can reduce their tax bill or increase taxable losses, thus gaining valuable funding to reinvest in resources and further advance their R&D efforts. This incentive acts as a mechanism to help companies foster innovation and drive growth.

Am I Eligible for R&D Tax Credits?

To qualify for R&D tax relief, the work must be part of a specific project aimed at achieving an advance in science or technology. Claims cannot be made for advances if they are within:

  • The arts,

  • Humanities,

  • Social sciences, including Economics.

The project must be related to your company's trade, whether it is an existing trade or one you plan to establish based on the R&D results. To make a claim, you need to demonstrate how the project:

  • Aimed to advance the field

  • Faced and tried to overcome scientific or technological uncertainties

  • Tackled issues that could not be easily resolved by a professional in the field

What is the criteria for R&D Tax Credits?

The government’s criteria for R&D Tax Credits are intentionally broad, making it possible for companies of all sizes and sectors to benefit. If your business is taking risks to address scientific or technological uncertainties, you may be engaging in qualifying activities.

Even if you're unsure whether your project is feasible or how to implement it, you might still be addressing technological uncertainties and therefore engaging in qualifying R&D activities. Importantly, the government’s definition specifies that R&D efforts do not need to be successful to qualify for the tax credits.

For further details on R&D Tax Credits or any other specific information, please reach out to a member of our Approved tax team today.

What costs qualify for R&D Tax Credits?

In the UK, a variety of costs qualify for R&D Tax Credits, providing valuable financial relief for businesses engaged in research and development. Eligible expenses include:

  • Staff Expenses: This covers salaries, employer's National Insurance Contributions (NIC), pension contributions, and reimbursed expenses related to R&D activities.

  • Subcontractors and Agency Labours: Costs associated with hiring subcontractors and Agency Labours for R&D projects are eligible.

  • Materials and Consumables: Expenses for materials, as well as consumables like heat, light, and power, that are consumed or transformed during the R&D process can be claimed.

  • Software: Certain types of software used in R&D activities qualify for tax credits.

  • Payments to Clinical Trial Subjects: Compensation paid to participants in clinical trials is also considered a qualifying expense.

Understanding these eligible costs can help your business maximise the benefits of R&D Tax Credits, providing crucial support for your innovation efforts.

What R&D Tax Credits incentive is right for my business?

The type of incentive you use to make an R&D tax credit claim largely depends on whether your company is an SME or a large company.

SME: An SME has fewer than 500 staff and either a turnover of no more than €100 million or gross assets of no more than €86 million. Most companies, including start-ups, fall into this category.

Large company (RDEC): A large company has 500 or more staff and either a turnover exceeding €100 million or gross assets exceeding €86 million.

If you are classified as an SME for R&D tax credit purposes, your next step is to make a claim through the SME R&D tax incentive. If you are a large company, you should make your claim through the Research and Development Expenditure Credit (RDEC).

However, certain factors, such as grants and subcontracting, can restrict an SME from accessing the SME incentive. In such cases, you may need to make a claim via RDEC or a combination of both incentives.

At Approved, we assist a variety of companies across all sectors in benefiting from R&D Tax Credit incentives. If you believe your business could benefit from R&D tax credits, Check your eligibility today!

What are the R&D Tax Credit Rates?

Loss-making SMEs can claim up to 18.6p for every £1 spent on qualifying R&D activities.

Loss-making R&D-intensive companies (those spending at least 40% of their total expenditure on qualifying R&D) can claim up to 27p for every £1 spent.

Profit-making SMEs can claim up to 21.5p for every £1 spent on qualifying R&D activities.

Large companies or SME's subcontracted by large companies can claim 20p for every £1 spent on qualifying R&D activities, with the average RDEC claim being £225,298 in the same period.

The R&D tax credit rates are detailed in the table below:

Schemes are being merged into a 20% scheme for claims or periods after March 31st. Contact us for our expertise on how this change could affect your business.

What is the R&D Tax Credit claim process?

Discover our streamlined process for securing R&D tax credits. We ensure complete transparency in our services, with no hidden fees or unexpected complications. Navigating R&D tax credits has never been easier. Our no-obligation consultation won't affect your credit score.

  • Step 1 - Discovery and Assessment:

Your Approved Tax specialist will contact and will help gather the needed information, supported by our expert advisers, consultants, and specialists.

  • Step 2 - Information Collation and Analyses:

Our specialist team will help identify qualifying R&D and work with you to gather all necessary information for a successful claim.

  • Step 3 - Building your R&D Tax Credit Claim:

We will build your claim, add the required evidence for HMRC, and detail your qualifying activities and costs, ensuring compliance for a strong claim.

  • Step 4 - Review and Submission to Process:

You'll get reports for approval with breakdowns of our findings. We'll finalise and file your tax credit claim with your Corporate Tax Return (CT600). After submitting your claim, we'll liaise with HMRC, providing ongoing support.

  • Step 5 - Receipt of Benefit Funds and Reinvestment:

Your innovation investment benefit can lower your Corporation Tax Bill or be paid into your account. The Approved group can aid further investment for growth.

How to apply:

If you believe that your business could benefit from an R&D Credit Tax Claim and would like to check your eligibility, then please click here to apply and a member of our specialist tax team will get in contact as soon as possible. Alternatively, feel free to give us a call on 01908 429888 and we'll be happy to answer any questions you may have.


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