R&D and RDEC Tax Credits
How UK companies can claim Research & Development relief to significantly reduce their Corporation Tax liability or receive a cash credit from HMRC.
What is R&D Tax Relief?
Research and Development (R&D) tax relief is a UK government incentive that allows companies to reduce their Corporation Tax bill — or receive a cash credit — by claiming back a portion of the costs incurred in innovative projects. R&D relief is available to UK limited companies that are subject to Corporation Tax. Sole traders and partnerships are not eligible.
What Qualifies as R&D?
HMRC defines R&D broadly. A project qualifies if it seeks to achieve an advance in overall knowledge or capability in a field of science or technology — and involves overcoming scientific or technological uncertainty. This can include: • Developing new products, processes or software • Improving existing products or processes in a scientifically or technologically uncertain way • Custom software solutions where the solution is not readily available • Pharmaceutical research, engineering innovation, and more Commercial risk alone does not constitute R&D. There must be genuine technical uncertainty.
SME R&D Relief Scheme
For small and medium-sized enterprises (SMEs — broadly companies with fewer than 500 employees and either turnover under €100m or balance sheet under €86m): • Enhanced deduction: 186% of qualifying R&D costs (from April 2023) • If the company is loss-making, it can surrender losses for a repayable credit of up to 10% (PAYE cap applies) Note: The SME scheme was significantly reformed from April 2023. Previously the uplift was 230% and the credit rate was 14.5%.
The RDEC Scheme
The Research and Development Expenditure Credit (RDEC) is primarily for large companies (those that do not qualify as SMEs) and for SMEs that have received certain grants. • RDEC rate: 20% of qualifying R&D expenditure from April 2023 • The credit is taxable but results in a net benefit of approximately 15p per £1 of qualifying spend • RDEC is shown above the line in company accounts, improving EBITDA From April 2024, a merged R&D scheme applies to most companies, replacing the separate SME and RDEC schemes for most purposes.
Qualifying Costs
Costs that can be included in an R&D claim: • Staff costs (salaries, NI, pension contributions) for employees directly involved in R&D • Agency workers (65% of cost) • Consumables and materials used in R&D • Software licenses used in R&D • Subcontracted R&D costs (with restrictions) • Utilities directly attributable to R&D activities Capital expenditure is generally not included, although you may claim capital allowances separately.
How to Make a Claim
R&D claims are made through the company's Corporation Tax return (CT600). You must also submit an Additional Information Form (AIF) to HMRC before or at the same time as the CT600. The time limit for making an R&D claim is two years after the end of the accounting period. Keeping contemporaneous records of R&D projects, costs, and the technical uncertainties involved is essential.
Key Benefits
- Reduce your Corporation Tax bill
- Receive a cash credit if loss-making
- Claim staff costs, materials and software
- Two-year window to make retrospective claims
- Applicable across most sectors and industries
Could You Claim R&D Relief?
Many businesses don't realise they qualify. We can review your activities and prepare a robust claim.
Talk to an Accountant