How to Maximise R&D Tax Credits

Annabel Ah-Lim


February 15, 2024

R&D tax credits can be a great way to improve cash flow in your business by reducing your corporation tax liability – if you know what they are and what they do. Let’s explain what R&D credits are, when you can make the most of them, and how you can apply for them.

What are R&D tax credits?

Research and development (R&D) tax credits are an incentive from the UK government to get companies to invest more in innovative systems and technologies. It’s a way of reducing your tax bill by reclaiming up to 33% of the costs even if the R&D project failed! So as a small or medium sized business (under 500 employees), you can claim a further £130 per £100 you spent on R&D costs that meet the qualifying criteria. Large companies of 500+ employees can claim 10%, and while they are unable to surrender losses, they can reduce their tax bill if still profitable.

It’s estimated that nearly 9 in ten businesses don’t apply for R&D Tax Relief, and every year millions of pounds go unclaimed because businesses aren’t aware that they’re eligible.

If your company is multinational, only projects that are conducted in the UK can be claimed for.


Who is eligible?

Great news! There’s no restriction on industry for claiming R&D tax credits. As long as you’re seeking an advancement in science or technology as it relates to your field then you could be eligible.

You don’t even have to be looking into making a product from scratch to be considered an innovator – if you’re making advancements in order to improve something that already exists, then it’s still worth looking into claiming for the R&D relief. What’s more, the projects don’t need to have been successful to make you eligible.

Here’s a quick checklist to go through to see if your business qualifies:

  1. Have you spent money on innovation research?
  2. Did you carry out any innovative work?
  3. Was there any uncertainty/risk involved?
  4. Have you filed your corporation tax return?

If you meet these requirements or would like to speak to someone in more detail, get in touch with us today. We’ll do our best to put you in contact with an R&D specialist accountant who could help with your application.

How to apply

Your accountant may be able to help you with claiming R&D credits. Because you have to convince HMRC that you truly qualify for the relief, you have to be very exact and concise throughout the application. This means showing that you understand the parameters they’ve set out regarding what qualifies. It can be better to use a specialist accountant if you’re unsure on anything.

For anything beyond a simple claim, it is best to seek assistance from a specialist. The benefits of using a specialist firm to help with your R&D claim include peace of mind that what you’re claiming for is eligible, assurance that your claim is maximised to its full potential, and minimising possible delays.

In the event that HMRC believes you’ve got it wrong, they may make an enquiry which will delay any payments by a few months. The absolute worst case scenario involves penalties for misfiling the application.

Firstly, you need to include your enhanced expenditure into the CT600 Company Tax Return form which provide on their website. You can claim for R&D tax relief up to two years after the project.

To support your claim, log in to HMRC’s online service with your Government Gateway ID and provide the necessary details.

You’ll be asked to give a summary of your project, and this should include:

  • How your project sought an advance in science or tech and how it aimed to achieve this
  • If your project had to overcome uncertainty (scientific or technological)
  • How it overcame the uncertainty
  • How/why the project’s aim couldn’t be worked out by a professional in the field

Alongside this summary, you’ll need to give the start and end dates of the accounting period where your R&D project has taken place. (NB. the dates should match those in your CT600.) Additional information HMRC require is:

  • Total amount of relief you’re claiming for
  • A breakdown of the costs
  • The 10 digit unique tax reference number (UTR)
  • Any unrelieved trading loss for the period in which you are claiming tax relief


Key benefits of R&D Tax Credits

No restriction

As we’ve already touched on, there’s no restriction on industry so all businesses are welcome to apply for R&D credits. Because the tax credits are to be used for advancement in science or technology in your industry, there’s a misconception that the only sectors who can apply are those within the scientific and technological fields.

Not repayable

The tax credits are an injection of cash for your business that you don’t have to repay. They give your company the potential to unlock private investment and boost economic growth.

Fuelling innovation

With the savings R&D credits make, you’ll be able to begin putting your company at the forefront of national and international innovation.

No minimum claim

Prior to 2012, businesses had to spend a minimum of £10,000 to claim R&D credits, but no longer! If you’re a small business that has a small expenditure, you can claim for any amount that you’ve spent on qualifying R&D projects.

Claim for a number of costs

There are a number of costs involved with claiming R&D credits, including those for subcontracting, creating prototypes, and tech analysis. According to HMRC, the main costs that can be included in your claim are:

  • Direct R&D staff costs
  • Externally provided R&D staff
  • Subcontracted R&D
  • Software used directly in the R&D
  • Prototypes
  • Clinical trial volunteers
  • Consumable items (e.g. water, fuel, power)
  • Collaborative working
  • Contributions to independent research

Maximise R&D tax credit potential

The most obvious thing that will help you get the most out of R&D tax credits is recognising the potential for innovation in your sector. As mentioned above, if there is a product or service or process in your industry that you think could use improvements, or a gap in your industry for something you think you could fill, go for it!

It’s also highly recommended to be thorough and regimented in your record keeping. Obviously, you need to provide detailed records for your application but it’s good to have them for your own use too. Keep records for all projects you undertake and all advances in technology and/or science that you sought out, ready to show during the application process if required. And perhaps most importantly, keep a log of all costs. These can include costs for prototypes and trials, and payments for personnel involved such as sub-contractors.

While on the subject of paying workforce, it’s a good idea to pay directors involved in the projects a salary rather than a dividend, as the latter cannot be claimed as a credit whereas salaries can.

Make sure you fully understand what you can claim for; this will mean that you really maximise the full potential of R&D tax credits and don’t miss out on any crucial funding.

Talk to your accountant, or get in touch with us to see if we can help you find an accountant well versed in the ins-and-outs of claiming R&D tax credits. Specialist accountants will have a discussion with you about your business and the work it has carried out to identify any qualifying projects, and be able to produce a report to support your claim.

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