What are R&D Tax Credits?

HMRC’s Research and Development Tax Credits

The UK Government’s research and development tax credits initiative rewards innovative companies with significant R&D tax breaks or rebates, and we guide your business through the entire process.

What is R&D?

When a business sees a problem or a gap in the market and starts investigating different ways to fill it, they could end up trying to create a new product, change a process or even extend the knowledge within a certain field. This is R&D.

Research and Development Tax Credits Explained

Initially introduced in 2000 by the Government to encourage and reward R&D within limited companies or PLCs. Research and development tax credits offer an additional tax reduction of up to 24.7p (33p if you are surrendering a loss) for every qualifying pound spent on R&D.

Two Schemes

SME Scheme

Research and Development Tax Credits Explained - SME Scheme

SME Scheme Criteria:

Less than 500 employees

Turnover of less than €100m

Enhanced reduction of 130% on all qualifying R&D expenditure or an additional tax deduction of 24.7p (33p if you are surrendering a loss) for every qualifying pound spent on R&D.

RDEC Scheme

Research and Development Tax Credits Explained - RDEC Scheme

RDEC Scheme Criteria:

Over 500 employees

Turnover of over €100m

Have notified grants

Enhanced reduction of 12% on all qualifying R&D expenditure or an additional tax deduction of 9.7p (11p if you are surrendering a loss) for every qualifying pound spent on R&D.

Top 10 Claiming Sectors

By Number of Claims

Manufacturing (7,210)
Info & Comms (6,650)
Prof, Sci & Tech (5,135)
Wholesale & Retail (2,645)
Admin & Support (1,400)
Construction (705)
Finance & Insurance (445)
Other Services (410)
Education (270)
Arts, Entertainment & Rec (245)

*HMRC’s Research and Development Tax Credits statistics from 2015-16

Top 10 Claiming Sectors

By £M Claimed

Manufacturing (£860m)
Prof, Sci & Tech (£635m)
Info & Comms (£550m)
Wholesale & Retail (£125m)
Education (£115m)
Finance & Insurance (£105m)
Admin & Support (£85m)
Arts, Entertainment & Rec (£65m)
Construction (£45m)
Other Services (£15m)

*HMRC’s Research and Development Tax Credits statistics from 2015-16

Qualifying R&D Activity

Qualifying R&D Activity

HMRC classifies R&D as a project that seeks to ‘advance science or technology’ and tries to overcome a ‘level of uncertainty’.

Simply put, if your business is taking a risk in trying to develop something that will advance the scientific or technological knowledge in your field, and you have undergone a process of trial and error then you could qualify. This includes:

  • New products, services, and processes
  • Changes to products, services, and processes
  • Project failures or successes

Take the 5 question R&D Tax Relief Quiz

Qualifying R&D Costs

Qualifying R&D Costs

R&D tax credits cover R&D costs from the start until the end of a project’s “uncertainty” or the trial and error phase, this includes:

  • People: Salaries, wages, NICs & pension contributions
  • Subcontractors: Subcontractors, agency staff or freelancers
  • Raw Materials: Chemicals, flour, electronic components, raw materials
  • Utilities: Heating, lighting and power
  • Software: Bespoke software designed specifically for your R&D project
Claim 26p per R&D Pound

Benefiting Your Business

Research and development tax credits offer a number of benefits to your business and any future innovation plans.

  • You could enjoy an additional tax reduction of up to 24.7p (33p if you are surrendering a loss) for every qualifying R&D pound
  • Profit making companies will pay a lower Corporation Tax rate
  • Loss-making companies can convert losses into cash or carry them forward
  • Your first R&D claim will cover up to two financial years’ of R&D costs, and you can continue claiming year on year, as long as you continue to have eligible innovations.

If you are innovating in Nothern Ireland, GB or Ireland contact us to see how research and development tax credits could benefit your company.