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R&D tax credits explained
R&D tax relief is a powerful way of supporting innovation within your business. Depending on the size and profitability of your company, you could receive a benefit of up to 27% of your qualifying R&D expenditure across relevant projects.
- R&D tax relief can help fund future innovation, reducing the risk associated with producing new products and processes.
- Despite changes, the incentives remain very beneficial. With ForrestBrown as your specialist partner and tailored support, you can enjoy far-reaching benefits.
- We take a rigorous approach to delivering R&D claims, ensuring all value is captured while protecting you from risk.
On this explainer page, you'll find everything you need to know about R&D tax credits.
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 funding for businesses to invest in accelerating their R&D, hiring new staff and ultimately growing.
R&D helps drive productivity and economic growth, with benefits for society as a whole. R&D tax incentives encourage businesses to invest in developing new technologies which deliver spillover benefits to the wider economy as well as supporting commercial success.
How do they work?
Companies that spend money developing new products, processes or services, or enhancing existing ones, could be eligible for R&D tax relief.
If you’re investing in innovation, you may be eligible to make an R&D tax credit claim to receive either a cash payment and/or Corporation Tax reduction.
It’s important to understand whether your project qualifies. HMRC provides guidance to help businesses, and issues guidelines on the meaning of R&D for tax purposes.
Claims for accounting periods beginning on or after 1 April 2024 fall under a merged R&D scheme or, for eligible loss-making SMEs, Enhanced R&D Intensive support (ERIS). Claims for periods prior to this are subject to different rules depending on the size of the business.
Is my business eligible for R&D tax credits?
To benefit from R&D tax incentives, you must:
- Be a limited company in the UK that is subject to Corporation Tax.
- Have carried out qualifying research and development activities.
- Have spent money on these projects.
Who qualifies?
UK companies working on innovative projects in science and technology could be eligible to claim R&D tax relief.
R&D takes place in a wide range of industries. It is unlikely that you will be eligible if your activity is not recognised as a scientific or technological innovation. You cannot claim if the advance is in the arts, humanities or social sciences (including economics).
HMRC also provides information on the types of claim which are rarely eligible, including those from care homes, childcare providers, personal trainers, wholesalers and retailers, pubs and restaurants.
R&D changes and why it’s still worth it
After two decades of relative stability, the early 2020s saw significant changes to R&D tax relief. It resulted in the introduction of the merged RDEC scheme and ERIS, legislative changes and increased HMRC compliance activity.
Some of the key changes relate to the introduction of mandatory documentation:
You can check the key dates for your claim with our R&D deadline tool >
Innovative companies should not be deterred from claiming. R&D tax relief remains a vital source of funding, and is particularly impactful for loss-making SMEs who meet the threshold for ERIS.
With proactive, tailored advice from a reputable adviser, you can continue to claim R&D tax relief with confidence and receive the full value for your innovation.
We’ve provided some useful tips on choosing the right specialist for your business >
What counts as R&D?
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:
Within the government’s accepted research and development definition, R&D doesn’t have to have been successful to qualify.
Further detail is available in our KnowledgeBank article:
What costs qualify for R&D tax credits?
Where qualifying activity is being undertaken, certain costs may qualify for R&D tax relief. They fall into the following categories:
- 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.
- Software licences and certain data and cloud costs.
- Payments to the subjects of clinical trials.
Read our article for more on:
Eligible projects
Projects can consist of a number of activities conducted to achieve an advance in science or technology. It’s important to get the boundaries of a project right.
While a project should encompass all activities required to resolve the scientific or technological uncertainty, it may be part of a larger commercial project. The wider project is likely to include elements that are not R&D.
Get an objective review of your previous R&D claim to identify any missed opportunities or potential risks
Find out moreWhich R&D incentive is right for my business?
The R&D tax scheme that applies to your business depends on your size, the nature of your R&D and the accounting period.
R&D tax credit rates
R&D tax credits are calculated based on your R&D spend in relation to your qualifying activity.
Depending on what incentive you’re claiming under, the rates of R&D relief can vary as shown in the table below.
| SME R&D tax incentive | RDEC | Merged scheme | Enhanced R&D intensive support | |||
|---|---|---|---|---|---|---|
| Company type | Before 1 April 2023 | After 1 April 2023 | Before 1 April 2023 | From 1 April 2023 | From 1 April 2024 | From 1 April 2024 |
| Loss-making SME | Up to 33.35% | Up to 18.6% | 10.5% | 15% | 16.2% | |
| Profit-making SME | Up to 24.7% | Up to 21.5% | 10.5% | Up to 16.2% | Up to 16.2% | |
| R&D intensive SME | Up to 27% | Up to 27% | ||||
| Large company | 10.5% | Up to 16.2% | Up to 16.2% | |||
How much are R&D tax credits worth?
The value of your claim will be determined by your individual qualifying spend and the incentive that you are claiming under. Although each claim will be unique, HMRC statistics for the tax year 2023 to 2024, indicate that the value of claims under the RDEC scheme have increased.
The average R&D tax credit claim made under the SME scheme was around £85,000, while the average claim under the RDEC scheme was around £438,000.
The benefits
ForrestBrown ensures that you receive the correct tax relief for your business, securing both financial benefit and strategic value.
Our technical experts bring their industry experience to understanding your R&D, while our tax experts seamlessly prepare your claim and protect it from risk.
So, whether you’re a scaling SME or large multinational; first time claimant or seeking to switch provider, partnering with a trusted adviser that understands the rules will benefit your claim.
Adding value to your business
ForrestBrown supports businesses with all aspects of R&D tax relief claims.
As well as providing unrivalled end-to-end claim support, we can add value by reviewing your last claim, developing your in-house claim capabilities, and providing sale or acquisition due diligence.
FAQ
No, you do not need to have spent a minimum amount on qualifying research and development (R&D) to submit an R&D tax credit claim. You must meet the eligibility criteria for R&D tax credits, including undertaking qualifying R&D activities and spending money on these R&D activities.