Innovation is the lifeblood of the economy, and the UK government actively supports it through Research and Development tax relief (R&D), a powerful incentive to reward advancement in ANY industry.
Whether you’re crafting cutting-edge software, improving food manufacturing, or enhancing professional services, R&D tax relief offers businesses of all sizes a valuable opportunity to fuel growth and reduce tax liability.
If you are wondering if your research and development projects qualify, then the team at Butt Miller can help. We can provide expert advice on R&D tax relief advice and can help you identify your qualifying activity.
Allow us to guide you through the R&D tax credit claim process. Get in touch today.
What is Research and Development (R&D) tax credit?
R&D tax incentives are the government’s way of rewarding businesses for investment in innovation. That includes any projects companies undertake to develop new products, processes and or services or to make enhancements to an existing product, process or service.
HMRC applies R&D tax relief as either a repayable tax credit (i.e., repayment from HMRC) for loss-making companies or a Corporation Tax reduction for profit-making ones.
Historically, there have been two schemes to reward UK businesses: the SME scheme and the RDEC (Research and Development Expenditure Credit) for large companies. However, as of 1 April 2024, the government consolidated the SME and RDEC schemes, and a new scheme was introduced for R&D-intensive small companies that are loss-making.
R&D sits alongside other innovation incentives, such as Patent Box relief, Innovate UK grants, and capital allowances for R&D-related investments.
What types of projects qualify for R&D development tax credits?
R&D tax credits apply to any project concerned with a scientific or technological advance.
HMRC have a specific definition of what qualifies as R&D:
“R&D for tax purposes takes place when a project seeks to achieve an advance in science or technology. The activities that directly contribute to achieving this advance in science or technology through the resolution of scientific or technological uncertainty are R&D”
To show that a project is R&D within the strict tax definition, you must be able to demonstrate that your project meets the following qualifying criteria:
- a scientific or technological uncertainty exists
- your R&D activity is designed to overcome the uncertainty
- why the solution is not readily deducible by other competent professionals
It’s worth noting that it is not necessary that your project was successful at actually solving the problem it set out to – only that it made adequate efforts to solve it.
What companies can benefit from R&D tax relief?
All businesses, provided they meet the following criteria, can benefit from R&D tax relief:
- a limited company trading in the UK
- working on projects that meet the HMRC R&D definition (see above)
- have eligible expenditure (see below) that is liable to Corporation Tax
Is my business eligible for R&D tax relief?
R&D tax relief is available to incorporated businesses in ANY sector that conduct research projects to further their field – not only to the scientific and engineering industries, as you might think.
Eligible businesses include software developers, food and drink businesses, retailers, wholesalers and even professional service providers.
At Butt Miller, we see too many companies miss out on valuable R&D tax relief. We can help you identify qualifying research, advise you on what costs qualify, and guide you through the R&D tax credit claim process.
Which costs are eligible for R&D tax relief?
Only specific costs incurred for R&D development activities are classed as eligible expenditures.
It is important not to fall foul of the strict rules put in place by HMRC as to what qualifies as eligible expenditure.
Mistakes can result in rejected claims, penalties, or delays, but working with an expert tax team like Butt Miller can ensure your claim is accurate, compliant, and optimised for success.
Qualifying expenditure
- Direct staff costs. For staff actively engaged in the R&D project, you can claim a proportion of their salaries, wages, class 1 National insurance, reimbursed expenses and pension contributions.
- Subcontracted R&D and externally provided workers. You can claim 65% of the relevant costs of using a subcontractor for your R&D activities, subject to special rules.
- R&D consumables. You can claim for relevant proportions of materials used, e.g., to build prototypes and utilities such as water and fuel.
- Software. This includes software acquired to be used directly and partly in R&D activities.
- Clinical trial volunteers. The pharmaceutical industry can claim payments made to volunteers involved in qualifying clinical tests.
Ineligible costs
- The production and distribution of goods and services
- Capital Expenditure (although some items may be eligible for R&D capital allowance)
- The cost of land and buildings
- The use of/or creation of a trade mark or patent
- Marketing
- Rent or rates
How Butt Miller can help you with R&D tax relief claims
Our chartered accountants and tax specialists have a wealth of experience and can advise you on all the ins and outs of R&D tax credits.
During our 20-year+ history, we have seen too many business owners miss out on what they are entitled to. That is simply not acceptable to us, and we will ensure that you make the R&D tax credit claim you deserve to help support your growth objectives.
We can help you by producing fully maximised R&D tax credit claims that stand up to HMRC investigation. If you have already submitted a claim, we can provide HMRC enquiry support to address questions, resolve disputes, and secure the tax relief your business is entitled to with confidence and efficiency.
To discover more about R&D tax credits and the other tax services we offer, please get in touch.
Frequently asked questions about Research and Development tax relief
What is an R&D-intensive SME?
An R&D-intensive SME is a loss-making company with qualifying R&D expenditure that makes up at least 30% of its total expenditure.
To be classified as an SME for R&D purposes, you must also meet HMRC’s criteria:
– Employ fewer than 500 individuals
– Generate a turnover not exceeding €100 million
– Possess gross assets of no more than €86 million
What kind of company qualifies for R&D tax credits?
All UK companies are eligible, and the definition of R&D is deliberately broad so that all industries can use the same criteria. You must be a tax-paying limited company in the UK to qualify.
How do I claim R&D tax relief?
You can claim R&D tax credits up to 2 years after the end of an accounting period, subject to whether claims have been made previously.
The claim is made by entering the enhanced expenditure into the Company Corporation Tax return (Form CT600) to reduce your taxable profits, thus reducing your tax liability and also by the completion of an additional information form to HMRC, which must be submitted before filing Form CT600.
If you make a trading loss and have no tax liability, you can choose to surrender this cash credit and claim cash payment.
What is HMRC R&D Claim Notification?
R&D claim notification is the formal process by which businesses inform HMRC of their intention to claim R&D tax relief. It’s mandatory for first-time claimants and those who haven’t claimed in the past three years.
This is separate from the additional information form, which must be submitted with every claim.
What happens if I miss the HMRC R&D Claim notification deadline?
Unless your company qualifies for the three-year exemption, you must submit a claim notification to HMRC. If you do not submit a claim notification to HMRC, HMRC will remove the claim from your Corporation Tax Return, and you’ll be denied the R&D relief, even if your R&D activities meet the eligibility criteria.
What is the HMRC R&D Additional Information Form?
The additional information form must be submitted with every claim. If it is not submitted, HMRC will remove your R&D tax relief claim from your corporation tax return.
The form requires details of the company and the senior personnel working on the claim, as well as information about the R&D project and how it qualifies for R&D relief.
Given the complexity of the form and the detailed information required, working with an accountant experienced in R&D tax claims can ensure the submission is accurate, complete, and stands up to HMRC scrutiny.
