R&D Tax Relief
Knowledge Hub
R&D Tax Relief Essentials
UK R&D Tax Relief
The Essentials of the HMRC Initiative
ROI R&D Tax Credits
All About Revenue’s Innovation Relief
Amplifi’s Process
Signing to Submission
UK R&D Tax Relief FAQ
Qualifying For R&D Tax Relief FAQs
Sectors - Who can claim
As long as an innovation seeks to resolve a scientific or technological uncertainty (a gap in the knowledge or capability) that a qualified professional couldn’t easily figure out or resolve using existing principles or solutions, that innovation could potentially qualify for the incentive.
However, the most frequently claiming sectors are software, engineering, manufacturing and life sciences.
Project - Qualifying criteria
A qualifying innovation project must attempt to fill a gap in the market by creating a new or enhancing an existing product, service or process.
In doing so, the R&D project should include the following:
- A scientific or technological uncertainty. This is your innovation challenge, following a logical and planned methodology to attempt to resolve the problem.
- An attempt to advance a given sector’s knowledge or understanding of the uncertainty (innovation challenge).
- A qualified professional who could not easily resolve the uncertainty.
- Financial commitment into research, testing and analysis in an attempt to resolve the uncertainty.
The innovation project may be successful or not. As long as an attempt was made, the R&D project could qualify.
Activity - Qualifying stages of an innovation
There are non-qualifying and qualifying stages of an innovations’ life cycle.
Non-qualifying
- Commercial/scientific idea
- Market feasibility research
Qualifying R&D
- Establishing technological or scientific uncertainty
- The process of resolving the technological or scientific uncertainty
- Prototyping
Non-qualifying
- Patents or other IP protection sought
- Pre-production design
- Industrial upscaling
Costs - Qualifying project costs
The following 5 costs qualify if they were directly used or consumed in the R&D project:
1. People
Salaries, wages, NICs & pension contributions of employees and externally paid workers.
2. Subcontractors
Up to 65% of unconnected subcontractor, agency staff or freelancer costs on the SME scheme (more restrictions on the RDEC scheme and from accounting periods beginning on or after the 1st April 2024 there are restrictions on overseas contractors – see R&D tax relief explained).
3. Raw Material
Materials and hardware e.g. chemicals, ingredients, electronic components.
4. Utilities
Power, water and fuel.
5. Software
Software expenditure (Data & Cloud Computing Costs (including data storage, hardware facilities, operating systems, software platforms and the purchase costs of data sets) will also be included on or after financial years beginning on or after 1st April 2023).
When to claim
R&D tax relief can be claimed for the last two closed financial years.
Grants - How they affect an R&D tax relief claim
It is possible to claim both grants and R&D tax reliefs, and our Grants Vs Tax Credits article highlights the recent changes in their relationship. However, there are numerous factors that determine what you can and cannot claim, so it’s best to consult an expert who can assess your specific innovation and its unique circumstances.
Scheme Details FAQ
Breakdown of the scheme rates, start and end dates
The below expenditure relates to qualifying R&D tax credit project costs.
Expenditure made on or before 31st March 2023
- 130% additional tax deduction on the SME scheme
- 13% additional tax credit gross benefit on the RDEC Scheme
Expenditure made on or after 1st April 2023
- 86% additional tax deduction on the SME scheme
- 20% additional tax credit gross benefit on the RDEC Scheme
- 14.5% higher payable credit rate with the Enhanced R&D Intensive Support (ERIS) initiative (for loss making SMEs whose R&D expenditure constitutes at least 40% or more of their total expenditure)
- Loss surrender rate for SMEs decreases from 14.5% to 10%
Accounting Periods Commencing 1 April 2024
- 20% additional tax credit gross benefit on the new merged (single) scheme
- 14.5% higher payable credit rate with the ERIS initiative (for loss making SMEs whose R&D expenditure constitutes at least 30% or more of their total expenditure)
SME and the RDEC scheme details
SME Scheme
The SME scheme is for qualifying R&D activity in small and medium-sized businesses.
For expenditure made on or before 31st March 2023, it offers an additional tax deduction of up to 130%. For expenditure made from 1st April 2023, it offers an additional tax deduction of up to 86%.
RDEC Scheme
The RDEC scheme is for qualifying R&D activity in large enterprises
For expenditure made on or before 31st March 2023, it offers a tax credit gross benefit of 13%. For expenditure made from 1st April 2023, it offers a tax credit gross benefit of 20%.
Migration To The Merged Scheme
Both these schemes are being superseded by the merged scheme. The new merged scheme applies to expenditure incurred in accounting periods commencing 1st April 2024. It is important to note that this is not for expenditure incurred from the start of April. For example, if the company year-end is 31st December 2024, all qualifying R&D costs from 1st January 2024 to 31st December 2024 are included in the SME/RDEC scheme, and it won’t be until the following financial year (31st December 2025 year-end) that the company’s R&D spend will changeover into the new merged scheme.
Merged scheme details
As part of a series of reforms, the new merged scheme applies to most SMEs (although some may qualify for the Enhanced R&D Intensive Support (ERIS)) and all large enterprises. It will apply to any qualifying R&D expenditure incurred in accounting periods commencing on or after 1st April 2024.
This single scheme replaces the previous SME and RDEC schemes and provides an additional tax credit gross benefit of 20%.
Introduced With This Reform:
- Contracted R&D can be claimed by the company making the decision to undergo R&D
- Oversea restrictions on subcontractors and EPWs
- Lowered notional tax rate for loss-making entities from 25% to 19%
- You can still claim R&D tax credits grant funded R&D expenditure
The Merged Scheme Migration
The merged scheme applies to expenditure incurred in accounting periods commencing 1st April 2024. It is important to note that this is not for expenditure incurred from the start of April. For example, if the company year-end is 31st December 2024, all qualifying R&D costs from 1st January 2024 to 31st December 2024 are included in the SME/RDEC scheme and it won’t be until the following financial year (31st December 2025 year-end) that the company’s R&D spend will change over into the new merged scheme.
Enhanced R&D Intensive Support (ERIS)
The Enhanced R&D Intensive Support (ERIS) is an enhanced payable credit rate of 14.5% is available for eligible R&D intensive loss-making SMEs that fall into the below criteria:
- Loss-making SMEs who spend 40% or more of their total expenditure on R&D, this expenditure will have incurred on or after 1st April 2023.
- Loss-making SMEs who spend 30% or more of their total expenditure on R&D in accounting periods beginning on or after 1st April 2024.
R&D Tax Relief Process FAQs
Pre-Claim Notification
R&D tax relief claims for expenditure during accounting periods beginning on or after 1st April 2023 must now notify the HMRC in advance of their intention to submit a claim.
Who Does It Affect?
- First time claimants
- If a business has not submitted a claim within the last 3 years (The 3 years can be calculated by taking 6 months from the end of the accounting period and counting back 3 years).
Requirements of the Pre-Claim Notification
The claim notification form can be completed by either a company representative or an agent acting on the company’s behalf and will require:
- Unique Taxpayer Reference
- Name and contact details of the senior internal R&D contact within the company
- Accounting period start and end date that is being claimed for
- Period of account start and end date
- Summary of the high-level planned activities
- Details of any agent involved in the R&D claim
Timeline to Submit The Pre-Claim Notification
The advance notification must be submitted within 6 months of the end of the accounting period for which the claim is being made.
Additional Information Form (AIF)
The R&D tax relief additional information form is a required document that businesses must submit to HMRC to support their claims for Research and Development (R&D) tax relief or expenditure credit. This form provides detailed information about the R&D activities, associated costs, and supporting evidence for each accounting period
Mandatory Submission
Introduced as a mandatory process for claims made on or after 8th August 2023, the Additional Information Form (AIF) must be submitted for each accounting period before or on the same day as your Company Tax Return. Without it, your claim will be invalid.
What Details Are Required
- Company details, including the UTR, PAYE, VAT number and SIC code
- Name and contact details of the senior internal R&D contact within the company
- Accounting period start and end date that is being claimed for
- Details of any agent involved with the R&D claim
- Qualifying direct and indirect expenditure details by cost category
- Details of projects being claimed for and total qualifying expenditure per project
- Loss-making R&D intensive SMEs need to include total relevant expenditure details
Who Can Submit An AIF
The AIF can be completed and submitted by either the claimant or an agent acting on behalf of the company.
Financials - What is required
To perform an in-depth analysis of a project’s relevant R&D expenditure (i.e. staff & EPW, subcontractors, consumables, utilities, software, data & cloud computing costs) and to create an R&D tax relief report that has a full and defendable audit trail, our R&D specialists will analyse the following financial documentation.
- Payroll
- Nominal ledger transactions
- Grant information
- Copy of the statutory accounts
- Copy CT600
- Copy of Tax Computation
Technical Narrative - What we include
To tackle abuse and fraudulent R&D tax relief claims, the government has introduced a new cross-cutting team and is requiring more detailed claims.
Therefore, the technical narrative needs to fully justify the expenditure outlined in the financial report.
Our industry experienced technical writers will interview the competent professional and other key members of the R&D team and produce a comprehensive technical narrative, which will include key information such as:
- Background into the company
- Project aim/context
- Competent professional and key people who worked on the project
- Advancement being sought
- Scientific and Technological uncertainties
- How attempted to resolve them
Accountant - Their role
In our process, the accountant is only required to:
- Possibly, share relevant financial information with our team.
- Submit the completed claim to the HMRC and make the necessary CT600 amendments (all the information for these steps will be provided by Amplifi Solutions).
How to claim
We recommend working with a specialist R&D tax relief provider (like Amplifi Solutions) to complete an R&D tax relief claim.
We have an experienced team of qualified accounts, chartered tax advisors, client account managers and industry experienced technical assessors who will compile a comprehensive claim, which we will defend against any HMRC enquiry.
Benefit - When the benefit should be received
Offsets will be taken off the tax bill when it is due.
Cash payments are estimated at 40 – 60 days, but this does depend on the HMRC workload.
Enquiry - Why HMRC would open a claim enquiry
The R&D tax relief incentive is currently undergoing a number of reforms, one of which is improving compliance and tackling abuse (£469 Million was lost in 2020/21 alone to fraudulent claims and error).
Subsequently, a number of new measures have been introduced, including adding 100 more compliance team members and requesting more details in claims, but it has also resulted in a rise in enquiries.
Some of the main reasons a R&D tax relief claim may undergo an enquiry include:
- Limited evidence to support the baseline
- No supporting information
- Disparities in the financial information or technical narrative
- Lack of qualifying proof
- Random selection
To help project your claim, work with an R&D tax relief adviser, like Amplifi.
We perform in-depth financial analysis of your R&D expenditure, create educated technical narratives that justify your spend, and we will support you during any HMRC audit.
R&D Tax Relief Sector Examples
Developing water, waste and energy infrastructures or innovating new HVAC systems, BIM, LID techniques, etc.
New drugs, species, formulas, medical devices, etc. FDA-compliant trials, screening, preclinical testing etc.
Updating products, finishes, performance features, etc. New waste reduction processes, technology infrastructures etc.
Innovative refrigeration, plumbing, heating, waste and HVAC system designs. CAD modelling, CFD analysis etc.
Development of generators, wastewater treatment, offshore electrical infrastructures, drilling equipment etc.
New software solutions, data encryptions, algorithms, adaption of off-the-shelf solutions, IoT and smart devices etc.
