R&D Tax Credits

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What are R&D Tax Credits?

The UK Government’s Research & Development (R&D) Tax Credit Scheme has been in place since 2000 in order to incentivise businesses to invest in projects focused on innovation.

This scheme has enabled over 89,000 Limited Companies across the country to receive a total of £6.6bn in tax relief during the last year alone. The scheme is open to Limited Companies only, whereas sole traders and partnerships are not included. When claiming R&D Tax Credits, businesses can receive either a reduction in their tax bill or cash credits for loss-making companies.

R&D tax relief can provide a number of significant tax benefits for businesses. These include reducing taxable profits, creating losses where none existed previously, or increasing pre-existing losses.

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  • Payable cash credit

    For Small and Medium Enterprises (SMEs) recording a loss, the payable cash credit does not constitute taxable income. Meanwhile, for larger companies with losses, the payable cash credit (see RDEC section) is subject to taxation.

  • Enhanced deduction

    This is a strategic move for businesses, it allows them to save their deduction for when they expect to be paying taxes at a higher rate. Some businesses can carry forward deduction as an investment to fund further R&D activities.



  • SMEs & large companies

    Companies that paid tax in the previous two years can roll back the relief to get a rebate of Corporation Tax. This is primarily tax they would not have paid if they had made the claim at the time.

Skyscrapers From Below

SMEs and large companies

Small and Medium-sized Enterprises (SMEs) are defined as companies with fewer than 500 FTE employees and either total revenues lower than €100 million or total balance sheet assets lower than €86 million. SMEs have access to the Small Business Rate Relief Scheme, which offers tax relief at a rate of up to 186%. Loss-making SMEs can also surrender losses to HMRC for a cash credit.

Large companies are generally defined as companies with 500 or more FTE employees, or those which have fewer than 500 employees but revenue in excess of €100 million and balance sheet assets greater than €86 million. If SMEs meet certain conditions, they may have to claim under the RDEC scheme.

The RDEC Scheme

The Research and Development Expenditure Credit (RDEC) scheme was introduced in 2013 and provides Large Companies and SMEs forced to claim under RDEC, a payable cash sum, if they are loss-making or an offset of tax payable if they are profitable. This replaced the Large Company Scheme from 1st April 2016. For expenditure from 1st April 2023, the Research and Development Expenditure Credit (RDEC) rate will increase from 13% to 20%.

Examples of qualifying activity for R&D tax relief

  • Engineering

    Improvements to manufacturing processes or machinery (doing things faster, at a better quality, with reduced waste or improved safety)

    Ergonomics – ease of operation or suitability of manufactured products.

    Computer models – for example to evaluate stresses or fluid flow.

  • Manufacturing

    Using new, unproven methods of manufacturing existing products.

    Developing ways of manufacturing new products.

    Increasing process efficiency / safety

    Reducing emissions

  • IT & Software

    Incorporating new or untested technology into products, where experimentation is required to select the best implementation route.

    Testing new technology or programming languages, where there’s little information on their usage in the public domain.

    Making existing products work on new platforms, where this involves overcoming technical problems that haven’t been solved before.

  • Scientific & Technical

    Genetic analysis of agriculturally important organisms or phenotypes.

    Development of protocols for the identification of disease agents.

    Development of new biomarkers (ie molecules that can act as a flag for disease)

    Making improvements to the specificity or accuracy of test protocols.


What activities are eligible?

There may be a discrepancy between what is considered R&D for the average person and HMRC’s definition. This can result in wasted time or, in the worst-case scenario, an HMRC investigation.

Eligible R&D activities can:

Occur in almost any industry attempting to improve efficiency, speed, size, scale, etc. Even include the replication of a product, process, service, or device if it results in a significant improvement.

According to HMRC, a company is engaged in R&D when they are:

Resolving technological uncertainties that lead to… Advancements in technology that are not easily discoverable by a skilled professional.

Encouragingly, R&D is still considered to have taken place regardless of whether the project was successful or not. The focus is on the “seeking” aspect.

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Eligibility questionnaire

Take our short eligibility questionnaire to find out if your company is entitled to receive R&D Tax Relief!


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