R&D tax relief can provide significant financial support to businesses that undertake innovation activities and develop new processes, products, or services. For tax purposes, R&D is defined as projects aiming to achieve advancement in science or technology.

Qualifying R&D Expenditures

R&D relief applies to the following qualifying expenditure:

• Externally provided workers: Eligible if the work is performed in the UK by employees paid through the PAYE/NIC scheme.
• Staffing costs: Includes earnings paid during the accounting period (excluding benefits), Class 1 secondary NICs, and pension contributions made within the same period.
• Payments for clinical trials: Relevant payments made to subjects participating in clinical trials.
• Computer software and consumables: These costs qualify as long as they are directly linked to the R&D activity.
• Subcontracted R&D costs: Limited to 65% of the total amount paid.

R&D Claim Process — Recent Updates

There have been several changes in how each claim is processed – some of the major changes are noted below:

• Additional Information Form (AIF):
  • From August 2023 all claims must include an AIF.
  • The AIF is submitted via an online portal before filing the company tax return and provides a detailed breakdown of included costs across all categories.
• Advance Notification Rules:
  • From April 2023 companies must notify HMRC of their intention to file a claim within six months of the end of the relevant accounting period.
  • Exceptions to this rule include:
    • If an R&D claim was submitted in any of the three preceding years.
    • If an R&D claim is filed within six months of the accounting period end.

Changes to R&D Rates

Up to 31 March 2023
Two schemes were available: the SME Scheme and the RDEC Scheme.

• SME Scheme:
  • Profitable companies: 130% uplift on qualifying costs.
  • Loss-making companies: Option to surrender losses based on 230% of eligible costs at 14.5%.
• RDEC Scheme:
  • Profitable companies: Relief at a headline rate of 13%.
  • Loss-making companies: Subsidy at 10.5%.

From 1 April 2023
The SME Scheme and RDEC Scheme continued with updated rates:

• SME Scheme:
  • Profitable companies: 86% uplift on qualifying costs.
  • Loss-making companies: Option to surrender losses based on 186% of eligible costs at 10%.
  • Intensive R&D companies: Losses surrendered at 186% of eligible costs at 14.5%.
• RDEC Scheme:
  • Profitable companies: Relief at a headline rate of 20%.
  • Loss-making companies: Subsidy at 15%.

From 1 April 2024
The SME and RDEC schemes merge into a single scheme with standardised rates:

• Profitable companies: Relief at a headline rate of 20%.
• Loss-making companies: Subsidy increased to 16.2%.

Speak to an Expert

If your company is advancing science or technology through innovation, whether via new processes or products, you may qualify for R&D tax relief. This can provide substantial benefits to your business.

For a no-obligation friendly discussion please contact our tax team.