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R&D tax credits explained

Rewarding innovation and fuelling growth, R&D tax credits have the power to transform your business.

What are R&D tax credits?

Research and development (R&D) tax credits are a government incentive designed to reward UK companies for investing in innovation. They are a valuable source of cash for businesses to invest in accelerating their R&D, hiring new staff and ultimately growing.

R&D tax credits explained infographic

How do R&D tax credits work?

Companies that spend money developing new products, processes or services; or enhancing existing ones, are eligible for R&D tax relief. If you’re spending money on your innovation, you can make an R&D tax credit claim to receive either a cash payment and/or Corporation Tax reduction. The scope for identifying R&D is huge – in fact, it exists in every single sector. And if you’re making a claim for the first time, you can typically claim R&D tax relief for your last two completed accounting periods.

forrestbrown education and awareness team

Speak to our education and awareness team

If you have questions about eligibility, or how much R&D tax credits might be worth to your business, get in touch with our team on 0117 926 9022 or at hello@forrestbrown.co.uk

Is my business eligible for R&D tax credits?

To benefit from R&D tax incentives, you must:

  • 1Be a limited company in the UK that is subject to Corporation Tax.
  • 2Have carried out qualifying research and development activities.
  • 3Have spent money on these projects.

Who qualifies for R&D tax credits?

R&D can take place in any sector. It occurs in everything from cheese-making to chemical engineering, and construction to digital development.

Do you want to know if your business qualifies?

Do you want to know if your business qualifies?

What counts as R&D?

The HMRC R&D criteria are purposefully broad. Whatever size or sector, if your company is taking a risk by attempting to ‘resolve scientific or technological uncertainties’ then you may be carrying out qualifying activity. This could include:

lightbulb out of box

Creating new products, processes or services.

service modify spanner

Changing or modifying an existing product, process or service.

If you’re not sure if your project is possible, or you don’t know how to achieve it in practice, you could be resolving technological uncertainties and be carrying out qualifying R&D.

Within the government’s accepted research and development definition, R&D doesn’t have to have been successful to qualify. You can also include work undertaken for a client, as well as your own projects. Further detail is available in our KnowledgeBank article: How do I know if I’m carrying out qualifying R&D?

What costs qualify for R&D tax credits?

When putting together an R&D tax credit claim, we look for the following types of R&D qualifying expenditure:

  • Staff, including salaries, employer’s NIC, pension contributions and reimbursed expenses.
  • Subcontractors and freelancers.
  • Materials and consumables including heat, light and power that are used up or transformed by the R&D process.
  • Some types of software.
  • Payments to the subjects of clinical trials.

Read our article for more on what qualifies for R&D tax credits >

What R&D tax credit scheme is right for my business?

What scheme you use to make an R&D tax credit claim will largely depend on whether you are an SME or a large company.

SME:

Fewer than 500 staff and either not more than €100 million turnover or €86 million gross assets. (Most companies, including start-ups, fall into this category.)

Large company:

500 staff or more and either more than €100 million turnover or €86 million gross assets.

 

If you are classed as an SME for R&D tax credit purposes, your next step will be to make a claim via the SME R&D tax credit scheme. And if you are a large company, via the Research and Development Expenditure Credit (RDEC).

However, there are a few factors like grants and subcontracting that can restrict an SME from accessing the SME scheme. This means you may need to make a claim via RDEC – or via both schemes.

We help SMEs across all sectors receive millions of pounds every month to re-invest back into their businesses. It is possible to make use of R&D tax credits and grant funding together by using both schemes to ensure maximum value.

Incentive:
Who you are:SME R&D tax credit schemeRDEC
SMEYesYes - sometimes
Large companyNoYes

Our team of chartered tax advisers save you time by preparing a robust R&D tax credit claim that uncovers all of your qualifying R&D activity and costs.

Find out more about ForrestBrown's R&D tax credit process

R&D tax credit rates

SMEs are able to claim up to 33p for every £1 spent on qualifying R&D activities. The average claim made by SMEs in the UK is £53,876 (2016-17).

Large companies are able to claim up to 10p for every £1 spent on qualifying R&D activities. The average claim made by large companies in the UK is £272,881 (2016-17).

The R&D tax credit rates 2018 are show in the table opposite.

See how much your business could potentially claim below.

Rates by incentive:
Who you are:SME R&D tax credit schemeRDEC
A loss-making SMEUp to 33%10%
A profit-making SMEUp to 26%10%
Large companyn/a10%

R&D tax credit calculator

Answer the following questions in our R&D calculator to see approximately what R&D tax relief could be worth to your business. The information is based on the R&D tax credit rates as of 1 January 2018.

Your exact return will depend on your R&D qualifying costs and activities that our expert team identify. The below R&D tax credit calculation example will estimate what it could be worth.

We estimate you could receive up to

£12,350

as a tax refund or reduced tax liability.

To reward businesses for their investment, the government allows you to enhance your qualifying expenditure.

£50,000 x 130% (enhancement rate) = £65,000
x 19% (Corporation Tax rate) = £12,350
£12,350 / £50,000 = 25%

We estimate you could receive up to

£61,750

as a tax refund or reduced tax liability.

To reward businesses for their investment, the government allows you to enhance your qualifying expenditure.

£250,000 x 130% (enhancement rate) = £325,000
x 19% (Corporation Tax rate) = £61,750
£61,750 / £250,000 = 25%

We estimate you could receive up to

£123,500

as a tax refund or reduced tax liability.

To reward businesses for their investment, the government allows you to enhance your qualifying expenditure.

£500,000 x 130% (enhancement rate) = £650,000
x 19% (Corporation Tax rate) = £123,500
£123,500 / £500,000 = 25%

We estimate you could receive up to

£247,000

as a tax refund or reduced tax liability.

To reward businesses for their investment, the government allows you to enhance your qualifying expenditure.

£1,000,000 x 130% (enhancement rate) = £1,300,000
x 19% (Corporation Tax rate) = £247,000
£247,000 / £1,000,000 = 25%

Read about our award-winning approach

How we make a claim

Do you have more questions? Get in touch with our team on 0117 926 9022 or at hello@forrestbrown.co.uk.

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