Does R&D tax relief need to be invested into more R&D?

No, HMRC does not require that the money from your R&D tax credit be reinvested into R&D. HMRC recognises that while R&D expenditure may make sense for a business in one fiscal year, the funds may be better spent in other areas such as growth or commercialisation in the following years.

While a majority of businesses that we work with tend to increase their R&D budget with the returned investment, that is not always the case. For one of our clients, Bloom & Wild, the most pressing need for their business was a new programme of brand and marketing development. That would be fine within HMRC’s guidelines as there are no restrictions on the usage of the funds you receive. And it is often the case that businesses may invest heavily in R&D in one year, and then their priorities change the following year, focusing on other aspects of their business.

The only relevant limitation to this issue is deciding on when you receive your R&D tax credit. If you are a loss-making company then you can either choose to receive the cash in the current year or offset the credit against future profits. The downside to taking a cash credit this year is that the amount you receive is reduced by roughly 25% (depending on other factors). You can read more about “Surrendering the loss” in our guide.

If you’re yet to receive your R&D tax credit and you’re not sure how much you are due, then it will be worth having a look over our guide to determining your R&D tax credit amount. The amount you receive back is determined by your company size and financial position, as well as the amount you have spent on your R&D projects in the previous year.