Does your work qualify for Research and Development (R&D) tax relief?

In the UK, eligible businesses that engage in research and development can claim tax relief.

The scheme was introduced in 2000 to encourage innovation by helping companies offset some costs associated with developing new products, processes, or services.

If you haven’t considered it before and you qualify, R&D tax relief could help your business grow.

But how do you know if your work qualifies for this tax relief?

Your business might be highly innovative in its sector, but it’s easy to confuse the general meaning of research and development with what counts as R&D under the DSIT guidelines on the meaning of R&D for tax purposes.

HMRC’s latest R&D Guidelines for Compliance emphasise the importance of correctly determining whether a research and development (R&D) claim meets the requirements for tax relief.

Read on as we explore issues around claiming Research and Development (R&D) tax relief and which types of businesses may be eligible.

What is R&D tax relief?

R&D tax relief is a government incentive to encourage work on innovative projects in science and technology in the UK.

To claim the relief, your business must have a project that seeks to make an advancement in science or technology overall, rather than just for your business. 

Read about essential tax relief for smaller businesses.

Which types of businesses might qualify?

R&D tax relief isn’t limited to one industry; many types of businesses can qualify.

For examples of qualifying projects and activities read how to identify qualifying R&D activities (part 4) - GOV.UK and be mindful that HMRC have seen some sectors targeted by agents who are persuading businesses to make ineligible claims, falsely stating they may be eligible for R&D.

The facts of an R&D claim always remain the company’s responsibility, even with professional advisors involved.

Interested in funding? 

Find out about R&D grants for smaller businesses.

How a business can qualify for R&D tax relief

Businesses must be able to distinguish their general commercial activities from their R&D projects, seeking an advance in science or technology to qualify for R&D tax relief.

They need to show that their projects:

1. Advance a field of science or technology

The project should expand overall knowledge or capabilities in the field, not just benefit your company.

It may involve developing a new product that benefits your industry sector.

2. Seek to address uncertainty

Routine adaptation, optimisation or fine-tuning of existing technology typically does not qualify as R&D.

The project must seek to resolve scientific or technological uncertainties that a professional in the field can’t quickly resolve using available knowledge.

These uncertainties should be clearly defined and specific to the project.

This means the solution isn’t already known or easily deducible through standard practices.

3. Have evidence to support your claim

It’s important to keep comprehensive records for your R&D tax relief claims, including:

• project plans and objectives – clearly outline what you aim to achieve and how you plan to do it
• documentation of uncertainties – record the specific scientific or technological challenges you aim to resolve and how you plan to address them
• evidence of advancements – keep track of how your project contributes to scientific or technological advancements.

You’ll need to record everything from test results, project plans and prototypes to expert evaluations.

This evidence will help you to complete and submit an additional information form required to support new claims for Research and Development tax relief, expenditure credit, or both.

The presence of good records should also make the compliance check journey easier for the customer in case of a compliance check, but won’t necessarily lead HMRC to decide not to enquire.

Without this documented information, your claims may be rejected, particularly if you can no longer provide insights retrospectively.

4. Involve a competent professional

Involve someone experienced in the relevant field of science or technology for your project who can assess if your project advances science or technology.

Their input is crucial for your claim.

Usually, the competent professional  will be someone who has worked on the project – but the opinion of any suitably qualified professional is sufficient.

5. May include ‘indirect’ activities and costs

Both direct R&D activities and certain related (indirect) activities may qualify for relief.

These include support functions related to R&D.

For example, an indirect activity might include administrative and support functions related to R&D.

Identifying the costs associated with direct and indirect activities is crucial.

This involves using an evidence-based approach to decide which costs directly contribute to your R&D tax relief claim.

Where these criteria are met, businesses can make a claim for R&D tax relief, potentially reducing tax liabilities and supporting innovation efforts.

How to tell HMRC if you want to claim Research and Development tax relief

If you do plan to claim R&D tax relief or expenditure credit for accounting periods beginning on or after 1 April 2023, you must submit a claim notification form if:

• you’re claiming for the first time
• your last claim was made more than 3 years before the last date of the ‘claim notification period’.

You must submit the form within certain dates known as the ‘claim notification period’. 

Your claim notification period depends on the:

• ‘period of account’ — the time covered by your financial statements (this might cover a period longer than 12 months)
• 'accounting period’ or periods that fall within your period of account — the time covered by your Company Tax Return (this cannot cover a period longer than 12 months).

If you do not, your tax relief claim will be invalid and you will not be able to claim R&D relief for that period.

To learn more, read the government’s guidance on work that qualifies for R&D tax relief.