Research & Development Tax Reliefs: At a glance

What is Research and Development (R&D) relief? How to claim R&D relief? How does small company R&D relief work? Can individuals claim R&D relief?

This is a freeview 'At a glance' guide to Research and Development (R&D) relief.

Subscribers, see Research & Development (R&D) Relief for your detailed version of this guide.

At a glance

The Corporation Tax relief available for qualifying Research & Development (R&D) expenditure will depend on the timing of the R&D expenditure and the type of company: 

• The Merged RDEC scheme (from 1 April 2024)
• The Small or Medium-sized Enterprise (SME) R&D Credits Scheme (until 31 March 2024)
• The R&D Expenditure Credit (RDEC) 'large company scheme'
• The loss making R&D-intensive scheme (from 1 April 2023 on)
• The Patent Box

Additionally, there are R&D capital allowances and Intangibles.

The rate of R&D relief depends on when the R&D expenditure was incurred and which form of tax relief applies:

 Payable credits are subject to a cap from 1 April 2021.

Loss-making R&D intensive companies are those whose qualifying R&D expenditure constitutes at least 30% (40% for FY 2023) of total expenditure

In order to claim relief, a company must have been engaged in qualifying R&D activity and then satisfy a number of specific conditions.

• The company must be a going concern.
• Any single R&D project must not receive Total aid of more than €7.5m.

 Special rules and conditions

• There are special rules if a company has received state aid in respect of the project.
• Expenditure is not generally available if it has been subsidised.
• There are special rules for contracting and Sub-contracting R&D.
• See R&D subscriber guide for details of how to make claims.

PAYE Cap on payable credits
A cap on any claims under the merged scheme and for payable credits applies subject to a threshold of £20,000 under which the cap will not apply.

• The cap is the threshold amount plus three times the company’s total PAYE and National Insurance Contributions (NICs) liability for that year.
• An exemption for genuine R&D businesses.
• See R&D: SME Tax Credit scheme

What is an SME?

The definition of an SME is taken as a company with fewer than 500 employees and a turnover limit of €100 million or a balance sheet total not exceeding €86 million.

Definition of R&D

Research and development (R&D) is defined for tax purposes in Section 1006 Income Tax Act 2007. This says the definition of R&D for tax purposes follows generally accepted accounting practice. The accountancy definition is then modified for tax purposes by the BIS Guidelines: 

• R&D for tax purposes takes place when a project seeks to achieve an advance in science or technology.
• The activities which directly contribute to achieving this advance in science or technology through the resolution of scientific or technological uncertainty are R&D.
• Certain qualifying indirect activities related to the project are also R&D. Activities other than qualifying indirect activities which do not directly contribute to the resolution of the project’s scientific or technological uncertainty are not R&D.

Qualifying costs

The company must have incurred qualifying expenditure on R&D projects.

Eligible expenditure may include expenditure which has been subsidised by a grant or subsidy: such expenditure may be claimed under the RDEC scheme.

Qualifying costs must have been incurred and cannot be of a capital nature. Revenue costs that have been put to the balance sheet can still be included within the R&D Claim. Capital costs relating to R&D work qualify for capital allowances at 100%.

Joint ventures: R&D may be carried out in a joint venture. In this situation, each company bears its own expenditure so the treatment is the same as for each company making its own claim.

Qualifying revenue costs include:

• Data licences and cloud computing
• Expenditure to advance the field of mathematics
• Staff costs, subcontractors and externally provided workers (EPW).
• Subcontracted R&D must be performed in the UK.
• EPW expenditure must be subject to UK PAYE and NIC.
  
  • see  R&D: Staff costs, subcontractors & reimbursed expenses.
• Materials consumed or transformed.
• Water and fuel.
• Specially commissioned parts.
• Software.
• Software designed or adapted see R&D software.
• Subcontractor costs: there are a number of pitfalls and planning points in relation to staffing and subcontractors, these are discussed at length in the Subscriber guide: R&D: Staff costs, subcontractors & reimbursed expenses.
• A proportion of variable overheads, see R&D claims and overheads.

There is a restriction on expenditure in respect of consumable items that qualify for R&D tax credits where the company sells the products of its R&D activity as part of its normal business. 

To claim R&D relief: summary

1. Make an application for Advanced assurance (new claimants, if eligible).
2. Make an Advanced Claim Notification (unless a claim has already been made in one of the last three periods), within six months after the end of the accounting period.
3. Submit an Additional information form with your CT600 or earlier
4. Claim tax relief via your Corporation Tax computation and the CT600 and attach your R&D Report

See How to claim: R&D Reliefs

The R&D report

A report should be filed as part of the company tax return as it is current HMRC practice to open an enquiry where no report is supplied. 

• See R&D Report Templates & how to make a claim for details and links to templates.

Where a company has been contracted to carry out R&D work and cannot make a claim under the SME rules, it may be possible to claim under RDEC 'the large company rules'. See SR&D RDEC Scheme for large companies and grant assisted companies.

Assistance from HMRC

HMRC has several specialist units across the UK which are available to assist with R&D claims.

HMRC's R&D Advance Assurance scheme for companies claiming R&D for the first time. Where assurance is given, the company will face no further enquiries into its claims for the first three accounting periods.

Useful guides on this topic

See Subscriber version of this note.

Our R&D guides:

• Patent Box
• R&D Tax Relief: Overview
• R&D: Software
• R&D: Staff costs, subcontractors & reimbursed expenses
• R&D Allowances (RDAs)

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Need assistance?

Making a complete and successful R&D claim takes times and requires know-how. Contact the Virtual Tax Partner support service for cost-effective assistance in:

• Starting a claim.
• Planning a claim.
• R&D start-ups.
• Any other queries on R&D.