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 R&D Tax Credit Schemes

SME Scheme

Research and Development Tax Credits Explained - SME Scheme

SME Scheme

Eligibility Criteria:
Less than 500 employees.

And Either:
Turnover less than €100m or balance sheet total less than €86m.

Tax Relief Benefit:
Enhanced reduction of 130% on all qualifying R&D expenditure generating an additional tax deduction of up to 24.7p (33p if surrendering a loss) for every qualifying pound spent on R&D.

Free Exploratory Meeting

RDEC Scheme

Research and Development Tax Credits Explained - RDEC Scheme

RDEC Scheme

Eligibility Criteria:
Greater than 500 employees.

And Either:
Turnover greater than €100m or balance sheet total greater than €86m.

Tax Relief Benefit:
Enhanced reduction of 13% on all qualifying R&D expenditure generating an additional tax deduction of 9.7p for every qualifying pound spent on R&D.

Free Exploratory Meeting

For businesses in receipt of grants, identifying the correct scheme can become complicated. In these situations, it is strongly advised to seek professional guidance.

Top 10 Claiming Sectors

By Number of Claims

Info & Comms (19,520)
Manufacturing (18,795)
Prof, Sci & Tech (17,355)
Wholesale & Retail (10,470)
Construction (6,760)
Admin & Support (5,015)
Health & Social Work (1,860)
Finance & Insurance (1,445)
Other Services (1,375)
Agri, Forestry, Fishing (1,275)

*HMRC’s R&D Tax Credits Statistics, all schemes from 2020/21

Top 10 Claiming Sectors

By £M Claimed

Prof, Sci & Tech (£1,650m)
Manufacturing (£1,500m)
Info & Comms (£1,440m)
Wholesale & Retail (£450m)
Construction (£375m)
Finance & Insurance (£335m)
Admin & Support (£275m)
Arts, Entertainment & Rec (£95m)
Mining & Quarrying (£75m)
Agriculture, Forestry, Fishing (£70m)

*HMRC’s R&D Tax Credits Statistics, all schemes from 2020/21

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: For example chemicals, ingredients, electronic components
  • Utilities: Heating, lighting and power
  • Software: Bespoke software designed specifically for your R&D project

Benefiting Your Business

R&D 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 33p 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 the UK contact us to see how research and development tax credits could benefit your company.

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