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R&D tax credits and reliefs
R&D tax reliefs and incentives reward businesses that are innovative and forward-thinking. The UK Government offers generous incentives for companies that invest in innovation.
Recent years have seen significant and frequent changes to the R&D regimes and increased scrutiny from HMRC of R&D expenditure credit (RDEC) and SME R&D tax relief claims. It is crucial that companies consult with knowledgeable R&D advisors in preparing these claims.
How do R&D tax incentives work?
Activities that advance the overall knowledge or capability in a field of science or technology while overcoming scientific or technological uncertainties may qualify for R&D relief.
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Small and medium sized enterprises’
R&D tax relief allows your company to deduct an extra 86% of your qualifying costs from your trading profit for tax purposes, as well as the normal 100% deduction, for a total 186% deduction, or claim a payable R&D tax credit if the company has claimed relief and made a loss. The credit is worth up to 10% of the surrenderable loss or up to 14.5% if the company meets certain “intensity conditions” for expenditure on or after 1 April 2023
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Large companies
can claim the R&D Expenditure Credit (RDEC) – an above-the-line taxable credit of 13% for expenditure up to 1 April 2023 and 20% for all expenditure incurred thereafter, which can either reduce a company's tax bill or allow it to claim a tax credit.
R&D experts
Our R&D services include trained engineers, scientists, accountants and software specialists, as well as expert tax consultants. S&W has brought together the market’s most specialised and diverse R&D advisory team to support your R&D claim, whatever your size or sector.
We do not compartmentalise our roles. Our R&D service specialists are well-rounded in the technical and financial aspects, providing valuable advice and helping you throughout the claim process:
- Providing real-time eligibility assessments and tracking technical and financial information
- Expanding the boundaries of R&D tax credits and reliefs beyond limited traditional scopes
- Using technology to integrate R&D tax credits into established processes and provide you with detailed, data-driven analytics on our bespoke portal
- Mitigating risks by identifying them early and forecasting benefits for cashflow planning
- Helping companies establish and grow an innovation culture by identifying, promoting, and rewarding innovative activities
- Advising how to reinvest and fund R&D tax incentives and R&D tax credits
- Collating and presenting data intelligently to improve its power to inform commercial decisions
We’re an active member of HMRC’s R&D Communication Forum and regularly liaise directly with HMRC’s key stakeholders on policy, legislation and technical matters.
Streamline your R&D claim
Our R&D tax consultants ensure R&D claims that maximise your return and minimise risk. We scrutinise all aspects of a company’s operations, ensuring that all R&D expenditure is accounted for while minimising disruptions to your operations. You can read more about our approach.
We offer comprehensive services:
- Feasibility assessments
- High-level R&D reviews
- Full R&D claims preparation
- Real-time project tracking
- Training and contract reviews
Like you, we continually strive for innovation and, with clients’ needs as diverse as the industries in which they operate, every claim is individually tailored.
Get in touch
Frequently asked questions about R&D tax incentives
What costs can we claim for R&D?
Businesses can claim for revenue-based expenditure for staff costs, utilities, consumables, software licences and some third-party expenses. For accounting periods starting on or after 1 April 2023, claimants may also include expenditure on cloud computing and data licences. Relief cannot be claimed on items of a capital nature, such as the purchase of plant and machinery, although R&D capital allowances may be available. Development costs capitalised as intangible assets may potentially be eligible to the extent they are revenue in nature for R&D tax purposes.
What are the potential benefits when making an R&D claim?
The amount of the benefit and the way it is calculated differs depending on the size of your company. Large companies can receive a 13% credit for eligible expenditure (20% for expenditure incurred after 1 April 2023). Small to Medium Enterprises (SMEs) receive an enhanced deduction that can be cashed out if the company makes a loss. This benefit can range from 24.7% to 33.35% of the qualifying expenditure identified (between 18.6% to 27% from 1 April 2023).
Depending on the company’s size and taxable profit position, R&D tax credits can be paid as:
- A corporation tax refund
- A cash credit
- An enhanced deduction to carry forward against future profits
What is the R&D claim process?
R&D tax relief is claimed within the company tax return. To claim these costs, the business must prove the eligibility of the associated activities. We can help prepare a report detailing how the eligibility criteria have been met, including:
- Advancements sought
- Uncertainties faced
- How these uncertainties were overcome
- Why the knowledge was not readily deducible by competent professionals
This report will be submitted to HMRC alongside your CT return, in addition to HMRC’s additional information form.
How far back can we make a claim for R&D Tax Credits?
Because R&D tax relief is claimed through a company tax return, companies have two years after the end of their financial year to submit an R&D claim.
What if we have paid someone else to perform R&D activities for us?
An SME can generally claim for 65% of the payments to unconnected parties. Special rules apply to scenarios where the parties are connected.
Subcontracted R&D expenditure is generally not allowable for large companies under the RDEC scheme.
Determining whether costs relate to R&D subcontracting or the provision of workers can be complex and may depend on the working relationship with third parties and contractual terms. It is worth speaking to our R&D Incentives Advisory team members.
Can overseas costs or activities be included?
There is no specific geographical restriction on R&D tax credits; the activities’ location does not affect eligibility. However, the government is considering restrictions on overseas costs for companies whose accounting periods begin on or after 1 April 2024.
These restrictions could mean R&D incentives can only be claimed for activities carried out in the UK or where workers are paid through a UK payroll unless material factors, such as environmental or regulatory requirements, mean those activities must take place overseas.