What qualifies for R&D tax credits?
Qualifying projects must seek a specific advance in overall science or technology by resolving technical uncertainties that a competent professional in the field cannot easily bridge. It is not enough to create something commercially new or aesthetically pleasing. The work must involve overcoming technical hurdles through systematic investigation. Eligible costs include staff payroll, externally provided workers, and UK based subcontractors. You can also claim for software licences, data hosting, cloud computing services, clinical trial volunteers, and consumable materials transformed during the research process.
Who can claim R&D tax credits?
Any UK limited company liable for Corporation Tax can potentially claim R&D tax relief regardless of their industry or size. While sole traders and partnerships are excluded, the scheme is open to both profitable and loss making entities. Under the current rules, most companies use the merged R&D expenditure credit scheme. However, loss making SMEs with an R&D intensity of at least 30% may qualify for Enhanced R&D Intensive Support. First time claimants must ensure they notify HMRC within the required six month window.
How far back can you claim R&D tax credits?
You can generally submit an R&D tax relief claim for your two most recent completed accounting periods. This timeframe is defined as two years from the end of the accounting period in which the relevant expenditure was incurred. Once this statutory amendment window closes, you can no longer reclaim costs for those earlier years. It is vital to monitor these deadlines closely, especially as new claimants or those who have not claimed recently may be subject to strict advance notification requirements to HMRC.
How much are R&D tax credits worth?
The merged expenditure credit is 20% of qualifying spend before tax, which nets down to around 15.0% to 16.2% depending on your corporation tax rate. ERIS is worth materially more in cash to loss making SMEs where qualifying R&D is at least 30% of total expenditure.
Can you claim R&D tax credits on a grant funded project?
Yes. Under the merged scheme, grant funding is irrelevant to the claim: the expenditure credit is calculated on qualifying expenditure regardless of how the project was funded. The old subsidised expenditure restrictions have been abolished, so there is no need to split grant funded costs out of the claim. A separate de minimis state aid limit applies to Northern Ireland registered companies claiming ERIS.
How do you calculate R&D tax credits?
Start with qualifying expenditure: staff costs, employer NICs and pension contributions, UK subcontracted R&D at 65%, consumables, software, data licences and cloud computing. Under the merged scheme, multiply that total by the 20% expenditure credit, then apply corporation tax to the credit: the net benefit is around 15.0% to 16.2% of qualifying spend. Loss making R&D intensive SMEs can instead claim the ERIS payable credit of up to 14.5% on enhanced expenditure. Worked examples are on our R&D tax relief calculator.
Are R&D tax credits state aid?
The merged expenditure credit and ERIS are not notified state aid, so they do not count towards de minimis or other aid ceilings, and receiving grant funding no longer restricts a claim. The exception is Northern Ireland registered companies claiming ERIS, where the EU state aid framework still applies and a de minimis limit can bite. For almost all UK claimants, R&D tax relief sits alongside grant funding without any subsidy control problem.
How long does HMRC take to pay?
HMRC aims to process most claims within about 40 working days, though enquiries and compliance checks extend that. A well evidenced technical report and a clean additional information form are the fastest route to payment.
Can a sole trader, partnership or contractor claim R&D tax credits?
No. R&D tax relief is only available to companies within the charge to UK corporation tax, so sole traders, partnerships and individual contractors cannot claim. If you carry out qualifying R&D as an unincorporated business, incorporating a limited company before the work starts is usually the route to future claims.
Can you claim R&D tax credits for a project that failed?
Yes. Relief rewards the attempt to resolve scientific or technological uncertainty, not the outcome. A failed or abandoned project often makes a strong claim because it shows the uncertainty was real; keep notes on what you tried and why it did not work.
How much cash can a loss making company receive, and what is the PAYE cap?
Loss making companies can surrender relief for a payable cash credit under the merged scheme or, if R&D intensive, under ERIS. The payable amount is capped at £20,000 plus 300% of the company's PAYE and NIC liability for the period, unless the company meets the exemptions for creating or managing its own intellectual property and spending under 15% of qualifying costs with connected parties. Startups with no payroll should check the cap before relying on a cash figure.
If a customer commissioned our R&D, who claims the relief?
Under the merged scheme the company that decides to undertake the R&D, usually the customer commissioning it, is normally the one that claims, not the supplier doing the work. This catches out agencies, software houses and consultancies, so review your contracts to see who bears the risk and directs the work before you claim.
Can we file an R&D tax claim ourselves without an adviser?
Yes, there is no requirement to use an adviser. You must submit the claim notification (where needed), the additional information form and a technical narrative alongside your company tax return. Most claims HMRC challenges fail on a weak technical case or misclassified costs, which is why many companies use a specialist; GrantUp works on a success fee only, typically 10%, with no lock in and no minimum claim size.
What records and evidence do we need to keep for an R&D tax claim?
Keep project plans, technical notes, test results and iterations that show the uncertainty and how you tackled it, plus timesheets or reasonable apportionments of staff time, payroll records, subcontractor and consumable invoices, and software and cloud costs. Records should be kept for at least six years and be ready if HMRC opens an enquiry.
