About R&D tax credits
- Research and development (R&D) helps companies improve profits and grow by creating new high value-added products, processes and services.
- The R&D tax credits help companies to invest more in R&D.
- The tax credit can either reduce a company's tax bill or, for some small or medium sized companies (SMEs) not in profit, provide a cash sum. The R&D tax credits are available to companies throughout the UK.
Am I doing R&D?
- The guidelines on the meaning of R&D for tax purposes issued by the Secretary of State for Trade and Industry outlines the full definition of R&D for tax purposes.
- A basic definition is "work to resolve scientific or technological uncertainty aimed at achieving an advance in science or technology". Advances include new or improved products, processes and services.
- Broader innovation in products, processes and services (e.g. proprietary content, non-technical design or developing other non-technological unique selling points) isn't R&D - but it may still be a good idea!
- If it's obvious to a professional how to do something, doing it isn't R&D. If there is a 'non-obvious' scientific or technological problem around how to do something, then doing it is probably R&D.
- As a rule of thumb, developing information or other 'content' is not R&D, but developing the means to deliver 'content' can be R&D.
Can I benefit from R&D tax credits?
- All companies with qualifying spending over £10,000 a year on R&D are entitled to a deduction when calculating their taxable profits of
- 150% of qualifying expenditure for SMEs or
- 125% of qualifying expenditure for larger companies,
reducing the company's UK corporation tax bill accordingly.
- Companies can claim R&D Tax Credits for their revenue expenditure on
- employing staff directly and actively engaged in carrying out R&D,
- paying a staff provider for staff provided to the company who are directly
and actively engaged in carrying out R&D,
- consumable or transformable materials used directly in carrying out R&D
(broadly, physical materials which are consumed in the R&D), and
- power, water, fuel and computer software used directly in carrying out R&D.
- Capital expenditure is not eligible - this imay be covered by 100% capital allowances (Research & Development Allowances) instead.
Am I eligible?
- If you spend at least £10,000 in the accounting period on qualifying R&D you should consider putting in a claim for the tax credit. There is no upper limit.
- Broadly speaking, to claim under the SME scheme, you should be a small or medium sized company. This means you must have fewer than 250 employees with either an annual turnover not exceeding €50m or a balance sheet totalling €43m, and not be part of a larger Enterprise that would fail these tests. Other companies should apply for the large company scheme.
- SMEs not in profit can get a cash payment of up to 24p per £1 of qualifying expenditure instead of deducting 150% of R&D expenditure when calculating their profits - thus getting money to support R&D while the company is loss-making.
- There are special rules for R&D by SMEs that is funded by others (e.g. DTI Technology Programme or Grant for R&D). The rules may mean that tax credits under the SME scheme is not available, but a claim at the large company rate may instead be available.
Help for SMEs
A new guide to R&D tax credits for SME companies and their advisers is now available. Developed by DTI and HM Revenue & Customs with input from small companies, the guide includes information on how the R&D tax credits scheme works, what can be claimed and how to claim. It highlights some common errors to avoid and provides a number of tools to make claiming easier.
Differences between the SME and large company schemes
| SME scheme |
Large company scheme |
| 150% rate of enhanced deduction |
125% rate of enhanced deduction |
| Payable credit at £24 for every £100 of qualifying expenditure on R&D |
No payable credit |
| Company can claim for expenditure on R&D it sub-contracts to others |
Company can only claim for expenditure on R&D it carries out itself, unless it sub-contracts R&D to universities, charities or public sector research establishments |
| Company cannot claim for contributions to independent research |
Company can claim for contributions to independent research |
| Claim can be reduced if the R&D project is subsidised or a grant is received in respect of it |
No reduction for grant or subsidy |
| Company must own the intellectual property arising out of the R&D |
Company need not own the intellectual property arising out of the R&D |
How do I claim R&D tax credits?
A company claims R&D tax credits in its company tax return (Form CT600).
For your first claim, you may want to seek professional advice. Full details of the R&D tax credits legislation, including
how to claim, are provided in the HM Revenue & Customs' Corporate Intangibles Research
and Development (CIRD) manual. Alternatively, information can be obtained by contacting
your Local Tax Office Corporation tax team.
Where can I get help and further information?
- Detailed information about R&D tax credits, which can help you understand what and how to claim, is available via the HM Revenue & Customs' website
- It can be a good idea to discuss a possible claim in advance with your tax inspector. It can save wasted effort for you and for them!
- Professional advisers such as your accountant can help you make a claim, but charge fees.
- Trade associations and professional networks may help put you in touch with other companies with experience of claiming R&D tax credits.
Other R&D and innovation support
If you are involved in R&D you may be able to claim 100% capital allowances for your R&D capital spending. The Business Link Business Support Directory has information on Government support, including grants, for innovation and science.
Important Note |
Guidelines on the definition of R&D for tax purposes |
Government Support For R&D |