R&D Tax Relief: Eligibility, Claimable Costs, and Benefits

The UK’s R&D tax relief scheme is designed to encourage companies to innovate, making substantial investments in research and development. Below, we break down who is eligible, what expenses can be claimed, and the types of relief available.

Who is Eligible for R&D Tax Relief?

Any UK-based company that is liable to Corporation Tax and is undertaking qualifying R&D activities can apply for R&D tax relief. R&D projects are eligible if they seek to overcome uncertainties in science or technology with a measurable advancement in these areas. This can include companies of any size, across various sectors, if they meet these key criteria:

1. Scientific or Technological Advancement: The project must aim to make an appreciable improvement in science or technology.
2. Addressing Uncertainty: The work should address specific scientific or technical challenges that cannot be easily solved by a competent professional in the field.
3. Innovation Process: The company must demonstrate a systematic, methodical approach to resolve uncertainty, even if the project doesn’t achieve the intended results.

What Costs Can Be Claimed?

Eligible companies can claim a range of expenses directly related to the R&D project. Some of the most common claimable costs include:

• Staff Costs: Salaries, pensions, and National Insurance contributions for employees directly involved in R&D.
• Materials and Consumables: Items used up or transformed during the R&D process, such as raw materials, fuel, power, and water.
• Software and Data Costs: Software directly used in the R&D process, including data licenses and cloud computing costs if integral to the project.
• Subcontractor and Externally Provided Worker Costs: For R&D work contracted out to others, up to 65% of the associated costs are eligible, provided the subcontractors or externally provided workers contribute directly to the R&D.

Certain other expenses, such as payments to volunteers in clinical trials, can also be eligible, particularly for R&D in pharmaceuticals.

Tax Relief Available

The tax relief or credit received depends on whether the company is profitable or loss-making. Relief is typically calculated as a percentage of the qualifying R&D expenditure:

• Tax Deduction: R&D expenses can be deducted from taxable profits, effectively reducing the overall tax liability.
• Tax Credit for Loss-Making Companies: Eligible loss-making companies can surrender their losses to receive a cash credit, which provides valuable cash flow for further investments.

For companies in profit, R&D tax relief can reduce the corporation tax due, while loss-making companies can receive a tax credit based on their eligible R&D spend.

How We Can Support You

Our team partners with R&D tax specialists to help you accurately identify qualifying projects, maximize your claim, and ensure all required documentation aligns with HMRC guidelines. We guide clients from the initial eligibility assessment to the final claim submission, providing comprehensive support to simplify the process and optimize your R&D investment.

If you’re considering a claim or want to discuss your eligibility, reach out to us for a consultation. Together, we can help you harness R&D tax relief and support your business’s growth and innovation.