Research & development tax relief

Rewarding innovation

If your business is developing new products, processes, materials or services then you may be able to claim UK R&D tax relief.

what isR&D tax relief?

The UK Government's Research and Development tax relief scheme is a way to encourage and reward companies that are investing in innovation.

If your company is profitable and eligible, you can benefit from a reduction in your company's tax bill.

Not yet profitable? The UK will reimburse your R&D expenditure as a cash credit of up to 27% of the R&D expenditure. R&D tax credits can be claimed retrospectively up to two years after the accounting year-end date.

What qualifies as innovation? For tax purposes, R&D takes place when you are creating something that will advance the overall knowledge or capability in a field of science or technology. In simple terms, if you are solving industry problems, creating new software, processes or materials or anything that could be considered Intellectual Property, you qualify.

What projects & costs qualify?

All industries, developing or improving new products, processes, or services can be eligible for R&D tax credits. The scheme also recognises that not every attempted R&D project succeeds and therefore does not discriminate against failed attempts, so the R&D expenditure will still be claimable so long as a genuine attempt has been made to resolve 'uncertainty'.

There are many types of projects that qualify, but most projects will involve the development of new technology or services or novel applications of technology to scientific problems. If your company is taking a risk in attempting to resolve a scientific or technological uncertainty, then there is a good chance you are also carrying out R&D. Most importantly, the projects do not need to be successful to qualify. Once a scientific or technological problem has been identified, and a way to fix it sought, the work towards this goal will be eligible regardless of the result.

Eligible expenditure could include staff costs, agency workers, subcontractors, consumables and/or software. We’ve found that many companies don’t understand the scope of things that may qualify as costs. This prevents companies from claiming R&D tax relief on them, and, as a result, potentially losing thousands of pounds or more in R&D tax relief. We will help you navigate this! Our industry sector R&D specialists know exactly what to look out for and will be sure to include it in your claim.

How to claim?

R&D tax credit claims are made through company corporation tax returns, with SMEs being able to claim up to 27p for every £1 spent. A business can prepare and submit a claim by themselves. However, you must ensure that you understand exactly what type of expenditure qualifies under the R&D relief scheme and are able to present it in a way that satisfies HMRC. If not, the company runs the risk of their claim being queried or refused.

Over the years, we have perfected a template at Optimal Compliance that is compliant with HMRC requirements. Each report is written by our team of sector R&D specialists and accountants that know exactly how to shine a light on your innovative projects to secure the largest possible claim. Our team are experienced in claiming for a variety of clients, across a wide range of industries all over the UK. While you push the boundaries of science and technology, we push the boundaries of R&D tax relief so you can get rewarded for your innovation.

types of Incentives

Over the past years, there have been significant changes in the R&D tax relief landscape, leading to numerous legislative updates. To simply R&D tax reliefs, a merged scheme was introduced, which will apply to accounting periods tarting on or after April 1, 2024. It is valuable to familiarise yourself with the different rates between the schemes as your claim might fall under more than one of them.

Relief: SME companies can benefit from a reduction in Corporation Tax equivalent to 25% of R&D expenditure.

Credit: SME companies in a loss-making position can surrender those losses to claim a cash Tax Credit of up to 33% of R&D expenditure.

The RDEC (Research & Development Expenditure Credit) scheme was introduced in 2013 to replace the previous Large Company Scheme for R&D tax credits. This scheme is less generous than the SME scheme with the net benefit at around 10% of the R&D expenditure. RDEC is designed for larger companies that do not meet the SME criteria. However, SMEs can also claim under the RDEC scheme if this is not possible under the SME scheme, for example when an SME receives notified state aid to fund an R&D project.

From 1 April 2024, the headline rate for a profitable company with be 20% with the post tax rate between 15% or 16.2%.

SME intensive scheme: Companies that qualify as SME intensive for accounting periods starting 1 April 2023 can claim a benefit of up to 27%.

A reduced corporation tax rate of 10% is placed on profits stemming from patented technologies.

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We understand that often SMEs simply don’t have the time or the resources to organise making these claims themselves. That’s why we offer our R&D consultancy service where we can do all the hard work for you, while you focus on running your business. Our team of R&D tax relief consultants will take care of all the necessary paperwork and work with the relevant parties to ensure that you get maximum financial benefit from your R&D projectselow to learn more about our process.

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“Having worked with Optimal Compliance, it created a sort of paradigm shift in how we’re going to approach projects in the future. For Red Deer, claiming R&D tax relief helped hugely. We are now attacking unknowns head-on, which not only makes the projects we do a lot more interesting and widens the scope of our work, but we are also actively pushing the boundaries of what is architecturally possible.”

Director at Red Deer

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