R&D tax relief FAQs

R&D is a corporation tax relief, designed to reduce your company’s tax liability if you pay corporation tax. In certain circumstances, you may receive a tax credit (cash repayment).

You should consider an R&D claim if your company is creating a product, process, service, or material that is an improvement on what is already available and involves the use of science or technology.

HMRC is agnostic as to what industry / sector the claimant company operates in. Instead, they are interested in the underlying nature of the activities you undertake, ensuring they meet the R&D definition set out within the Department for Business, Energy & Industrial Strategy guidelines. In summary, any company is able to make an R&D tax relief claim, regardless of its industry / sector, provided it has undertaken qualifying activities, and has incurred qualifying expenditure.

There are four key reasons: (1) The relief can lead to cash repayments from HMRC. (2) The relief has improved considerably over the years, more than doubling for some since its introduction. (3) Certain conditions have been removed altogether – a claim that was not possible previously may be possible now. If you’ve looked at the relief in the past and decided against claiming, you should take another look. (4) Whilst there has been an increase in claimants in recent years, many eligible companies have not maximised the opportunity. If a competitor is claiming relief but you're not, you're placing yourself at a competitive disadvantage.

You can claim R&D tax relief through the corporation tax return (CT600) of your company. Specifically, the CT600L is a four-page supplementary form that you should submit with your corporation tax return when making an R&D claim. This can be done in an original return or through an amendment to a previously filed return.

Companies are able to go back and submit an R&D claim two years following the end of the relevant accounting period. For example, a claim for the period ended 31 December 2020 needs to be submitted to HMRC on / before 31 December 2022. If you don’t meet this deadline, the opportunity to make a claim for the relevant period will pass.

HMRC aims to process 95% of R&D claims, including making the corresponding payment, within 35 days from the submission of the tax relief claim.

Yes – HMRC has the right to charge a penalty, based on the corporation tax loss, for an incorrect R&D tax relief claim. The ability to charge a penalty is dealt with under the normal corporation tax self-assessment penalty regime in so far as the severity of the penalty will depend on the behaviour (i.e., careless, deliberate but not concealed, and deliberate and concealed) of the taxpayer.

The R&D relief is only available to companies who are spending money on qualifying activities. So, even if you’re not making a profit and / or not retaining the intellectual property developed, you could still qualify.

Find out if your business could be eligible. Follow the link below to take our quick, online self-assessment. Our team will review your position and let you know if you are likely to qualify and under which regime you should claim.

Self assessment form

Your company is likely to qualify for R&D if it has undertaken a project that is (a) aiming to achieve an advance in science or technology, (b) working to resolve scientific or technological uncertainty, and (c) the solution is not easily found by someone competent in the field. In summary, if experienced people in the field have to spend a significant amount of time and effort, the costs associated with the work required to solve the problem could qualify for R&D tax relief.

Qualifying costs for R&D tax relief need to be of a ‘revenue’ nature rather than ‘capital’.  Direct and externally provided staff, subcontracted R&D, consumables, software, trials, prototyping, and independent research costs may all qualify. Subcontracted expenditure is only available under the SME regime. Staff costs consist of basic salary, bonus, employer’s pension contributions and employer’s Class 1 NIC but not recruitment or benefits in kind. Special rules apply for unconnected externally provided workers and subcontractors, so only 65% of such costs incurred by the company are eligible. Staff, externally provided worker and subcontractor costs need to be paid (not left outstanding as a liability) for a valid R&D tax relief claim to be made.

Companies claiming under the SME regime would typically be able to include 65% of the costs paid to the third party in respect of qualifying activities. It may be possible to take 100% of costs paid to connected parties, provided a connected party election is made. However, the RDEC regime does not allow such costs (payments made to third party) to be included in their R&D tax relief claims. Only amounts paid to individuals, partnerships (where each member is an individual), or qualifying bodies, in relation to qualifying activities, are eligible for R&D tax relief under the RDEC regime.

The SME scheme provides companies with a benefit of up to 33 pence in the pound (£) of the qualifying expenditure incurred on qualifying activities where a tax refund is claimed. The specific benefit will depend on your corporation tax position, and whether your company is profit or loss making. The rate of relief may vary if the corporation tax rate changes.

The RDEC scheme provides companies with a taxable credit of 13%. After tax at 19%, this means that companies are able to claim back up to 11 pence in the pound (£) of the qualifying expenditure incurred on qualifying activities. The rate of relief may vary if the corporation tax rate changes.

For accounting periods beginning on or after 1 April 2021, companies making a claim under the SME regime need to consider the cap for R&D payments. The amount of R&D payments that an SME can receive in the relevant period will be capped at £20,000 plus 300% of the company’s total Pay As You Earn (PAYE) and National Insurance Contributions (NICs) for the period. Companies that (a) have employees that are creating or managing Intellectual Property, and (b) do not spend more than 15% of their R&D expenditure on subcontracted R&D to connected parties, or on connected externally provided workers, are not subject to the cap.

For R&D purposes, a company is regarded as an SME where it, together with any connected companies, has fewer than 500 employees and where one of the following criteria is met: (a) an annual turnover not exceeding 100 million euros; or (b) a balance sheet total not exceeding 86 million euros. This is a simple test to apply for single companies that are independent of other enterprises. However, the considerations become more complex when other dependent / connected / associated enterprises are involved.

If your company meets the SME definition (see separate FAQ for definition), you may be able to make a claim under the SME regime. If the SME criteria are breached, you can only make an R&D tax relief claim under the RDEC regime. There are three circumstances in which an SME may have to claim under the RDEC scheme for SMEs. These are where (a) the R&D was subcontracted to the company by another party, (b) the expenditure was subsidised by another party, or (c) the SME cap for R&D expenditure has been exceeded.

Research and Development Allowances are a form of capital allowance designed to enable companies to obtain a 100% corporation tax deduction for qualifying R&D capital expenditure. RDAs are available for all types of expenditure, including buildings, with the exception of land. Given the complexities around capital allowance rules (i.e., super deduction and AIA), we recommend that you request a detailed analysis to ensure the interaction between all the different capital allowances is considered, and an optimal filing position is submitted.

Patent Box relief (applying a 10% corporation tax rate to qualifying patent profits) is designed to work alongside the R&D tax reliefs to incentivise companies to keep their Intellectual Property in the UK after it has been developed. There are specific rules that ‘carve out’ the benefit from the R&D tax relief when calculating the Patent Box relief. This means that the benefit of the Patent Box is not reduced by a claim for R&D tax relief, and vice versa.

I don’t see the answer to my question, who can I contact for more information?

If you haven’t found the answer to your question in our handy R&D FAQs, don’t hesitate to get in touch. Our team have the experience and expertise to help with any R&D tax query and are happy to discuss your specific circumstances. Just send us an email and one of our team will get in touch r&dtaxqueries@mazars.co.uk