What is R&D tax relief?

Find out how the relief works in practice.

R&D tax relief

R&D tax relief supports companies carrying out innovative projects. Put preconceptions about high-end science to the back of your mind. R&D tax relief covers a broad range of sectors and industries.

Under R&D guidelines, a project will qualify if it “seeks to achieve an advance in science or
technology through the resolution of scientific or technological uncertainty”.

If your business is investing money in innovation, you could qualify for relief.

Currently, there are two systems of tax relief for R&D.

If you're an SME* making a profit, you could reduce your tax bill. If you are loss making, you could potentially be entitled to a tax credit.

For large companies or those in receipt of external funding, the RDEC scheme offers a cash credit of up to 13% of qualifying expenditure (20% on expenditure incurred after 1 April 23).

*This means your group of companies has less than 500 employees and either a balance sheet of less than €86m or a turnover of less than €100m.

How does R&D work?

Example pre-April 2023

For expenditure incurred before April 2023 on qualifying R&D activity, companies can take an extra deduction of 130% and so reduce their tax bill. If this results in a loss, the loss can be surrendered at a tax credit of 14.5%.

Below is an example of how one of our client's R&D claims was broken down.

Profits without R&D tax relief	£250,000
Corporation tax without R&D	£47,500
Qualifying R&D expenditure	£400,000
Claimable enhanced deduction	£520,000
Revised profit / loss	£(270,000)
This loss can be used to offset future profits or surrendered for a cash tax credit of:	£39,150
Retained in-year profits	£47,500
Total R&D benefit	£86,650

Click here to see how this compares to a current R&D example.

Qualifying expenditure

Qualifying expenditure is vast and can include a portion of your spend on…

Employee costs

Subcontractor/

freelance payments

Utilities

Materials

(consumed or transformed)

Software costs

R&D in your sector

The definition of R&D is intentionally broad, covering a vast range of qualifying activities across a wide range of sectors.

However, the nature of each activity will be very specific to each business and sector. We would always recommend consulting an industry expert before submitting your claim. Doing so will ensure your claim is not only compliant, but maximised too. We've demonstrated some indicators which could suggest that you're undertaking qualifying R&D activities below…

Manufacturing

Developing and optimising the manufacturing process by exploring new cost-effective materials
Adapting products with new features or properties
Prototyping a new product or design
Appreciable improvements to an existing product or design

Pharmaceuticals

Creating new techniques for testing drugs or adapting the drug testing process
Designing sustainable pharmaceutical packaging
Developing new pharmaceuticals with better results
Developing personalised products to increase quality of life

Built environment

Improving the efficiency of energy use in a house or building
Overcoming the technical problems of working with listed buildings
Developing new ways of improving the building process
Adapting materials in the construction process

Engineering

Designing an innovative electrical system and new products to outperform competitors
Using new materials or a combination of new materials
Developing a unique solution in a challenging environment
Implementing elements of value engineering