What is Research and Development (R&D) relief? What is the Merged RDEC scheme? What is the SME credit scheme? What is the Enhanced R&D Intensive Support (ERIS) scheme? Which R&D Relief can you claim? What are the rates of 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 size of the company:
- For accounting periods beginning on or before 31 March 2024, qualifying companies can make claims under:
- The R&D Expenditure Credit (RDEC) 'large company scheme', or
- The Small or Medium-sized Enterprise (SME) R&D tax relief
- For expenditure incurred on or after 1 April 2023 loss making R&D-intensive companies can claim a higher payable credit under the SME R&D Credits Scheme (See below table).
- For accounting periods beginning on or after 1 April 2024, qualifying companies can only make claims under the Merged RDEC scheme.
- Companies will no longer be able to claim relief under the R&D Expenditure Credit (RDEC) scheme or Small or Medium-sized Enterprise (SME) tax relief
- The only exception is for loss-making R&D-intensive SME companies, which can continue to claim under the Enhanced R&D Intensive Support (ERIS) scheme.
Other reliefs
- The Patent Box
- R&D Allowances (RDAs) on capital expenses.
Rate of R&D Relief
The rate of R&D relief depends on when the R&D expenditure was incurred and which form of tax relief applies:
 |
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|
Relief |
From 1 April 2024 | From 1 April 2023 | From 1 April 2020 | From 1 Jan 2018 | From 1 April 2015 | From 1 April 2014 | From 1 April 2013 |
| Small or Medium-sized Enterprise (SME) R&D Credits Scheme (Accounting periods beginning before 1 April 2024. | |||||||
|
Enhanced deduction rate |
|
186% | 230% | 230% |
230% |
225% |
225% |
|
Payable credit* |
10% | 14.5% | 14.5% |
14.5% |
14.5% |
11% |
|
| Enhanced R&D Intensive Support (ERIS) scheme | |||||||
| Enhanced deduction rate | 186% | 186% | |||||
| Payable credit: Loss-making R&D intensive company* | 14.5% | 14.5% | |||||
| R&D intensive criteria: qualifying R&D expenditure as a % or more of its total expenditure** | 30% | 40% | |||||
| R&D Expenditure Credit (RDEC) (Accounting periods beginning on or before 31 March 2024) | |||||||
|
Above-the-line expenditure credit (RDEC) |
20% | 13% | 12% |
11% |
10% |
9.1% |
|
| Notional loss notional tax rate applied to loss-makers in the merged scheme | 25% | ||||||
| Merged RDEC Scheme (Accounting periods beginning on or after 1 April 2024) | |||||||
| Above-the-line expenditure credit (RDEC) | 20% | ||||||
| Notional loss: Notional tax rate applied to loss-makers and small profit-makers | 19% | ||||||
*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
***Small profit-makers are companies with total profits chargeable to corporation tax of less than £50,000, excluding the RDEC claimed. A lower rate of notional tax restriction applies. For all other companies the restriction will continue to apply at the main rate of corporation tax 25%
PAYE Cap on payable credits
There is a cap on claims for payable credits under both the SME R&D Credit Scheme, ERIS Scheme and the new Merged RDEC scheme. However, the restriction does not apply to claims below a threshold of £20,000.
- 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.
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.
Conditions to claim the relief
To claim relief, a company must have been engaged in Qualifying R&D activity and then satisfy several specific conditions.
- The R&D must be relevant R&D (see below).
- The company must have incurred qualifying expenditure.
- The company must be a going concern.
- Any single R&D project must not receive Total aid of more than €7.5m.
Definition of R&D
Research and development means activities that fall to be treated as research and development in accordance with Generally Accepted Accounting Practice (GAAP) or International Accounting Standards (IAS).
The accountancy definition is then modified for tax purposes by the Department for Science, Innovation & Technology (DSIT) Guidelines. The DSIT Guidelines apply for accounting periods beginning on or after 31 March 2023.
- 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.
The DSIT Guidelines take precedence if there is a conflict with the accounting definition.
Relevant R&D
R&D is relevant R&D where it is:
- Related to a trade carried on by the company.
- Related to a trade which is intended trade to be carried on by the company.
Research and development is related to a trade carried on by a company if it may lead to or facilitate an extension of the trade, or is of a medical nature which has a special relation to the welfare of workers employed in the trade.
Qualifying Expenditure
The company must have incurred qualifying expenditure on relevant R&D projects.
- 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:
- Staff costs
- Contracting out R&D and externally provided workers (EPW)
- Materials consumed or transformed.
- 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.
- Consumable items (i.e. water and fuel).
- Specially commissioned parts.
- Software, data licences, cloud computing and pure mathematics.
- Software designed or adapted, see R&D: Is software development a qualifying R&D activity.
- Contracting out R&D, subcontracting and Externally Provided Worker costs: there are a number of pitfalls and planning points in relation to staffing and subcontractors. Effective from 1 April 2024, there have been significant changes.
- A proportion of variable overheads and indirect activities, see R&D claims and overheads.
- Relevant payments to the subjects of clinical trials.
There are special rules for:
- State aid or Subsidised expenditure
- R&D undertaken abroad.
- Businesses in Northern Ireland
- Contracting out R&D, subcontracting and Externally Provided Worker costs
- Large companies: Vaccine research
To claim R&D relief: summary
- Make an application for Advanced assurance (new claimants, if eligible).
- Make an advanced Claim Notification (unless a claim has already been made three years prior to the claim notification deadline), within six months after the end of the accounting period.
- Submit an Additional information form with your CT600 or earlier
- Claim tax relief via your Corporation Tax computation and the CT600 and attach your R&D Report
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.
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.
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