R&D tax relief is one of the most generous tax incentives available to UK companies — and one of the most underclaimed. If your company spends money trying to solve a scientific or technological problem, you may be able to claim back a significant part of the cost.
This guide explains who qualifies for R&D tax relief, what counts as R&D, what costs you can claim and how to make a claim.
What Counts as R&D?
For tax purposes, R&D is work that seeks an advance in science or technology — an advance in the field as a whole, not just for your own business. The project must aim to overcome scientific or technological uncertainty: a problem a competent professional could not readily solve with existing knowledge.
Routine work does not count: updating a website, copying a competitor’s product or using standard methods in a standard way is not R&D, even if it is difficult or expensive. What matters is whether the work involves genuine uncertainty and a genuine attempt to resolve it.
Common examples include developing a new manufacturing process, creating software that does something no existing software does, or making a product work in conditions where it has not worked before.
The Merged Scheme: How R&D Tax Relief Works Now
For accounting periods beginning on or after 1 April 2024, the R&D schemes were merged into a single scheme. Relief is given as an above-the-line credit worth 20% of qualifying R&D expenditure before tax, and the credit is taxable — so the net benefit is lower than 20%.
Enhanced support is available for R&D-intensive loss-making SMEs — companies where R&D spending is a large share of total spending — which can claim a higher rate of relief on their losses. Rates and thresholds can change, so check the current rules before you claim.
Relief is claimed through the company tax return: it reduces the Corporation Tax your company pays, or, for loss-making companies, it can be surrendered for a cash payment. Our guide to corporation tax marginal relief explains how Corporation Tax rates work.
Qualifying Costs: What You Can Claim
Only certain costs qualify for R&D tax relief. The main ones are:
- Staff costs — salaries, employer National Insurance and pension contributions of staff directly engaged in the R&D.
- Externally provided workers — agency staff and contractors who work on the R&D project under your direction.
- Subcontractors — outside companies or individuals you pay to carry out R&D work for you.
- Consumables — materials, heat, light and power used up in the R&D process.
- Software, data and cloud costs — software, data and cloud computing costs used directly for R&D.
Costs that do not qualify include rent, rates, capital expenditure and the cost of producing goods once the R&D is finished. Keep your cost records separated by project.
Claim Notification Form: First-Time Claimants
If your company is claiming R&D relief for the first time, or if it has not claimed in the last three years, you must submit a claim notification form to HMRC. The form must be submitted within six months of the end of the accounting period you are claiming for.
Missing that deadline means you cannot claim for that period at all — so diarise it as soon as you decide to claim.
Additional Information Form: Before the Tax Return
Before you submit your company tax return, you must also submit an additional information form to HMRC. This form gives details of the R&D project: what the advance was, what uncertainty you faced, how you tried to overcome it, and the qualifying costs.
The form must be submitted before the company tax return — the return will be rejected if it has not been filed. Prepare it alongside your project records, because HMRC uses it to decide whether to enquire into your claim.
Keeping Project Records
Good records are the foundation of an R&D claim. Keep a project file for each R&D project, with:
- A description of the advance you were seeking and the uncertainty you faced.
- Notes of the work done, the problems encountered and how they were tackled.
- Timesheets or other records showing which staff worked on the project and for how long.
- Invoices and contracts for subcontractors, agency workers and consumables.
These records are part of your bookkeeping — our bookkeeping basics guide explains what to keep and how long to keep it. For help getting your accounts in order, see this guide to how to do accounting for a small business.
Common Mistakes to Avoid
The most common mistakes are claiming for routine work, claiming costs that do not qualify, and missing the claim notification deadline. Poor record keeping is another: if you cannot show HMRC what the uncertainty was and what you spent, your claim is at risk.
Take advice before you claim, especially if it is your first claim or the amounts are large — a specialist can check whether your project qualifies and help you prepare the additional information form.
Frequently Asked Questions
Does my project count as R&D?
It counts if it seeks an advance in science or technology and involves overcoming scientific or technological uncertainty — a problem a competent professional could not readily solve with existing knowledge. Routine work does not count.
How much is R&D tax relief worth?
Under the merged scheme, the credit is 20% of qualifying R&D expenditure before tax, and the credit is taxable. Enhanced support is available for R&D-intensive loss-making SMEs — check the current rules, as rates can change.
What is the claim notification form?
It is a form that first-time claimants — or companies that have not claimed in the last three years — must submit to HMRC within six months of the end of the accounting period. Missing the deadline means you cannot claim for that period.
What happens if HMRC enquires into my claim?
HMRC may ask for your project records and the additional information form, and may question the advance and the uncertainty. Good records make an enquiry much easier to deal with.
How We Can Help
R&D tax relief can be worth a significant sum, but the rules are detailed and the deadlines are strict. Financial Accounting Firm helps companies identify qualifying R&D, prepare claims and keep the records HMRC expects — see these accounting services for an overview of the support available to growing companies. If you have just set up a limited company and are developing a new product or process, it is worth checking whether your work qualifies. Find out more about our tax and accounting services or contact us to discuss your claim.
This article is general information only and should not be taken as personal tax or financial advice. Tax rules can change, and your position will depend on your own circumstances.
