R&D Tax Credits in the UK: The Ultimate Guide

Everything you need to know about the R&D tax credit scheme from HMRC: a complete guide for new claimants.

What are R&D tax credits?

The UK government’s R&D tax credits scheme is designed to stimulate innovation in the UK economy. The program provides UK businesses with either a cash credit or corporation tax deduction to compensate for up to 27% of the cost of their research and development.

The scheme can be hugely beneficial to companies by helping them reduce their tax bill, while loss-making companies can receive it as a cash payment. This reduction in corporation tax liability can potentially lead to significant savings.

The R&D tax relief scheme is available to businesses in all sectors, as long as your activity counts as R&D. So, if you’re developing new products, services, or processes or modifying old ones, then you may be able to make a claim for tax relief.

Am I eligible to claim R&D tax credits?

R&D tax credits are available to limited companies in the UK that undertake research and development projects.

What counts as an R&D project is often debated amongst R&D claims advisors. At EmpowerRD, we apply the following four criteria to get an initial indication of whether a project could qualify as R&D or not.

CRITERION 1 – New or improved product

If your business is developing a new or improved product, tool or service, you could be carrying out R&D. It’s also likely that you’ll be attempting to overcome an obstacle where there is no obvious solution.

Two examples of qualifying projects could be:

• The development of a new software product
• modifying your existing production line to increase productivity.

CRITERION 2 – Scientific or technological advance

HMRC states that your specific project must have made an ‘advance in science or technology.’ It sounds impressive and grand, but actually, many projects generate an advance.

For example, if you looked at an off-the-shelf technology and instead built a bespoke application or machine to solve your problem, then that work will likely qualify as an advance.

CRITERION 3 – Scientific or technological challenge

HMRC need to see that your project encountered ‘scientific or technological uncertainties’ for it to qualify for R&D.

Two factors indicate that you faced a scientific or technological uncertainty:

1. The solution to your challenge was not readily available or within public information.
2. A skilled professional working in your industry cannot easily solve scientific or technological uncertainty.

CRITERION 4 – Requiring competent professionals

The R&D should be carried out by competent professionals as that indicates that the advance was challenging to achieve. An example of a competent professional could be an engineer, scientist or skilled craftsman.

While these criteria are an indication of eligibility there are other factors that will affect HMRC’s view. For more information about eligibility, try our eligibility assessment or get in touch with one of our team.