A practical guide explaining how UK businesses can claim R&D tax credits, including eligibility criteria, qualifying costs, the claim process, deadlines, and common mistakes to avoid.
R&D tax credit is a form of research and development tax relief available to UK businesses to offset some of the cost of scientific and technological innovation.
Subject to a range of R&D tax credit eligibility criteria, companies can claim a deduction on their Corporation Tax for qualifying expenditure. Under the RDEC scheme, companies with no Corporation Tax liability can still make an R&D tax claim.
This guide will look at the R&D eligibility criteria and the process of how to make an HMRC R&D tax credit claim, as well as some of the common problems and deadlines you may encounter.
DSW’s experienced Tax Advisory team can guide you through the eligibility criteria and claim process for R&D tax credit.
Knowing the R&D tax credit eligibility criteria is an important first step towards making a claim. It can also help you to plan future R&D activity in a way that supports claims for tax relief or simplifies the process of making your claim.
R&D relief is available to offset the costs of research activity in a field of science and/or technology. Since 1 April 2023, this also includes advances in mathematics. Research must address a scientific or technological uncertainty, that is, something that experts in the field do not already know. Official HMRC guidance confirms R&D projects must seek an “advance in a field of science or technology”.
R&D tax credit is not industry-specific, but depends on the nature of the research you carry out. Because of this, a broad range of sectors can become eligible for an R&D tax relief claim.
Some examples given in HMRC’s Research and Development Tax Relief guide include:
If you are not sure whether your business qualifies, DSW can help. We can offer guidance on whether your research activities fall within the eligibility criteria, as well as determining which type of R&D scheme applies to you.
Research and Development tax relief covers several types of costs including consumables, staff costs, prototypes and software. R&D tax credit eligibility depends on the cost being incurred through R&D activity. In cases where costs arise only partly through R&D, a proportional claim may be made.
You can make substantial claims for staff who are directly and actively employed in an R&D project. This includes wages, salaries, pension fund contributions and Class 1 National Insurance contributions. You usually cannot claim for support staff, for example administrative and clerical roles, except in certain cases of eligible indirect activities.
Under RDEC, subcontracted R&D is generally not allowable, except in limited cases, such as where the work is directly undertaken by a qualifying body, an individual, or a partnership of individuals.
Under the SME scheme, you can normally claim 65% of the payments you make to R&D subcontractors. This includes where the subcontracted work was further subcontracted to a third party.
Consumable materials used for R&D purposes, along with power, fuel and water, may form part of your R&D tax credit claim. Materials that are incorporated into saleable products are no longer eligible for tax relief since 1 April 2015.
The cost of computer software may form part of an R&D tax claim if the software is used wholly or partly for R&D purposes. If the software is also used elsewhere in the business, a reasonably accurate apportionment should be calculated, for example based on the number of employees who use the software for each purpose.
A methodical approach to the R&D tax claim process can save time and help to avoid common mistakes and pitfalls. In general, the four-step process outlined below is a good starting point, although there are complexities involved in each step that expert R&D tax advice can help you to overcome.
Verify that your projects fall within the scope of R&D tax relief. Broadly speaking, they should advance overall knowledge in science, technology or mathematics, or have physical consequences, such as improving a physical process, creating a new process or material, significantly saving costs or reducing waste, and so on.
Calculate your qualifying costs in terms of your total expenditure directly on R&D. This can include a portion of some costs, for example software, as mentioned above. For convenience, you may prefer to keep R&D expenditure separate from the rest of your business or hire administrative staff who solely work on your R&D projects.
All of the relevant expenditure and supporting evidence should be compiled into a technical report, ready to prove your claim if necessary. This includes the apportionment of any expenditure for which you are making a partial claim. DSW offer a comprehensive service to compile your claim and reduce any risk of it being rejected in whole or in part.
R&D tax relief claims can be made on your Company Tax Return (Form CT600) by entering the total qualifying expenditure. You may also amend a previously submitted tax return in order to claim backdated tax relief, usually up to two years after the relevant accounting period ended.
Rule changes and complexity mean that it’s easy to make a mistake when filing an R&D claim. In the worst cases, this can mean that your entire claim is rendered ineligible despite your company carrying out legitimate qualifying activities. While many errors can be made, two of the most common occur when applications misclassify projects or miss deadlines completely.
It’s important to classify your project correctly in order to prove that it is eligible for R&D relief. Follow the criteria listed above for eligible R&D activities and the types of cost that can be claimed for. Rules do change over time, so it’s a good idea to get up-to-date advice before making a claim.
Waiting too long to claim R&D tax relief is one of the most common ways to render an HMRC R&D tax credit claim ineligible. Make sure that you know the deadlines for notifying HMRC about your intention to make a first-time R&D tax claim, as well as the overall deadline for filing your claim. There is more detail about timeframes and deadlines below.
Since 1 April 2023, a new deadline was put in place requiring notification of an intent to make an HMRC R&D tax credit claim. As HMRC explains, first-time or “infrequent” claimants must submit a claim notification form within six months of the period end. DSW’s tax advisory team keeps clients informed of these deadlines and notification requirements.
This applies to first-time claimants and ‘infrequent’ claimants, i.e. companies that have not claimed R&D tax relief for three years. For example, if your accounting period ends on 31 March 2025, you must notify HMRC before the end of September 2025.
You can claim R&D tax credits when you file your company tax return or by amending a company tax return you have already filed. The deadline for making amendments is usually within 12 months of the filing deadline.
Backdated claims may be made up to two years after the end of the accounting period, allowing you to make an R&D tax claim for qualifying work retrospectively. Remember the obligation to notify HMRC within six months if you are a first-time or infrequent claimant.
An exception applies to very long accounting periods. Where a company’s financial statements cover a period exceeding 12 months, HMRC requires the period to be split into separate corporation tax accounting periods, each not exceeding 12 months.
As a result, separate Corporation Tax Returns (CT600) and separate R&D tax relief claims must be prepared for each accounting period. Any qualifying R&D expenditure must therefore be apportioned between the relevant periods.
In line with HMRC requirements, an Additional Information Form (AIF) must be submitted to HMRC in support of an R&D tax relief claim. The AIF provides details of the qualifying R&D projects undertaken during the accounting period and a breakdown of the associated qualifying expenditure. Submission of the AIF is mandatory and must be completed prior to the filing of the Company Tax Return (CT600) containing the R&D claim.
Research and Development tax relief is a complicated subject, with multiple schemes that have changed multiple times in recent years. Due to the timeframes and deadlines allowed for filing an R&D tax claim, you may be able to file a backdated claim under the SME and RDEC scheme while also qualifying to make a current claim under the merged scheme and ERIS.
First-time and infrequent claimants must notify HMRC within six months to protect your R&D tax credit eligibility. It’s also important to know which costs qualify, not only so that you can claim R&D relief correctly, but also so that you can budget in advance for the true cost of carrying out eligible research.
To help you navigate these complex issues, DSW’s R&D tax claim service provides guidance compiled by our experienced team, with dedicated help to file your claim. We handle every step of the process, identifying which of your R&D activities qualify for relief and submitting the completed claim within the terms of the current R&D tax credit schemes.
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