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R&D Resources

Things to know

What is the R&D tax credit scheme?

The Research & Development (R&D) tax credit scheme was introduced by HM Revenue & Customs (HMRC) in 2001, rewarding UK businesses for investing time and money into innovative projects.

Through the scheme, UK SMEs can reclaim up to 33% of their R&D costs for two previous financial years. Large companies can reclaim up to 12% of their R&D costs through the RDEC scheme.

£33.3bn of tax relief has been claimed since the scheme began, with 300,000 claims in total since 2001. Usage of the scheme is increasing, but an estimated 80% of qualifying UK SMEs are currently not making use of the scheme. This is due to either a lack awareness of the scheme or a misunderstanding around what ‘R&D’ entails.

If your client’s business hasn’t claimed R&D tax credits yet, they could be missing out on a substantial rebate.

What is R&D, and does my client qualify?

What qualifies as ‘research and development’ (R&D)?

HMRC’s definition of R&D is broad and encompasses many different project types. According to the guidelines, R&D takes place when ‘a project seeks to achieve an advance in overall knowledge or capability in a field of science or technology’. If your project helps to solve a problem that no existing product on the market can solve, you’re likely to qualify for the scheme.

Below are a few questions that can help you figure out whether your client’s business qualifies for the R&D tax credit scheme:

  • Does the business create or make products that are new or are improvements on products that are currently on the market?
  • Has the business ever had to scrap a development project because they’ve reached a dead end?
  • Does the business employ a developer or an engineer, either in-house, remotely, or as a contractor?

If you’ve answered yes to one or more of these questions, your client’s business likely qualifies for R&D tax credits

The R&D projects don’t need to have been successful – failure is very much a part of the R&D process. If their business attempted to resolve technical uncertainties and invested in creation and innovation, it’s likely that they’ll qualify to reclaim a portion of their development costs.

Your R&D projects do not need to have been successful, failure is very much a part of the R&D process. If your business attempted to resolve technical uncertainties and invested in creation and innovation, you will likely qualify to reclaim a portion of your development costs.

What costs can a business claim for?

Your client’s business can claim for a number of costs relating to their R&D expenditure:

  • Salaries of staff involved in R&D projects (proportioned for the amount of time spent focused on R&D projects).
  • Expenditure on subcontracted work or externally provided workers.
  • Expenditure on consumables (utilities, materials and software) related to your R&D projects.

What if the business has subcontracted some of its R&D work?

This answer comes in two parts, depending on your position within the subcontracting relationship:

  • If your business is contracting part of your R&D project to another business, it qualifies as R&D expenditure for your claim.
  • If your business has been contracted to complete part of another business’ R&D project, your R&D costs may be eligible for a claim under the RDEC scheme.

What if the business is receiving grant funding?

Businesses receiving financial aid in the form of grants may not be eligible for the SME R&D tax credit scheme – but some of those costs may be eligible for funding from the RDEC scheme. It’s possible, however, for the business to combine grant funding and R&D tax credits to maximise any potential funding.

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