R&D Tax Credits Guide
RDP Associates breaks down and explains the R&D Tax Credit guide for SME (small business) and RDEC (large business) R&D.
What are R&D Tax Credits?
R&D Tax Credits are a UK government-backed incentive designed to encourage and reward companies that invest in research and development (R&D) and innovation.
The scheme allows eligible UK businesses to reduce their Corporation Tax bill or, in some cases, receive a cash payment if they are loss-making. These tax savings can then be reinvested into the business — for example, by hiring new staff, funding further R&D projects, or accelerating business growth.
Companies across many industries can qualify for R&D Tax Credits, provided they are working to develop new products, processes, or services, or improve existing ones while overcoming technical or scientific challenges.
Is my Business eligible for R&D Tax Credits?
If you have not claimed before and are uncertain if you are eligible, our R&D eligibility checker will tell you in 30 seconds.
Who Qualifies for R&D Tax Credits?
Both in the UK may qualify for R&D Tax Credits if they invest time and resources into research and development activities.
Eligible R&D activity includes working to develop new or improved products, processes, formulas, techniques, or services, where the project involves overcoming scientific or technological uncertainty.
Companies undertaking qualifying innovation can benefit from:
– A reduction in Corporation Tax liability
– A cash payment or refund (particularly for loss-making businesses)
– Reinvestment funds to support future R&D and business growth
Different schemes apply depending on company size:
– Merged RDEC scheme
– Enhanced R&D Intensive Support (ERIS) programme
To better understand whether your company qualifies, explore RDP’s 6 P’s of R&D eligibility, which outline the key criteria HMRC uses to assess claims.
What Counts as R&D?
Qualifying R&D Activities
HMRC’s definition of Research and Development (R&D) is broad and applies to both SMEs and large companies across a wide range of industries.
To qualify for R&D Tax Credits, a company must undertake a project that seeks to resolve a scientific or technological uncertainty, where it is not readily apparent whether a solution is achievable or how it can be achieved. This uncertainty introduces technical risk, which is a core indicator of qualifying R&D activity.
Qualifying R&D activities may include:
– Developing or significantly improving products, processes, services, or systems
– Experimentation, testing, and prototyping to overcome technical challenges
– Attempting alternative approaches where outcomes are unknown
– Projects involving innovation beyond publicly available knowledge
Importantly, unsuccessful or abandoned projects can still qualify. In fact, projects that are shelved or fail to reach a viable solution often provide strong evidence of R&D, as they demonstrate genuine attempts to overcome uncertainty—even where a solution could not be achieved.
What Costs Qualify for R&D Tax Credits?
The New Merged R&D Tax Credit Scheme
Under the new Merged R&D Tax Credit scheme, UK companies can claim relief on a range of qualifying R&D expenditures incurred while undertaking eligible research and development activities.
The following costs may qualify:
– Staff costs, including salaries and wages of employees directly involved in R&D
– Class 1 National Insurance contributions
– Employer pension contributions
– Subcontractors and Externally Provided Workers (EPWs) (Note: From 1 April 2024, overseas subcontractor costs and foreign EPW costs are no longer eligible)
– Software, cloud computing, and data costs are used in R&D activities
– Consumable items, such as materials, prototypes, utilities, and testing supplies
– Clinical trial costs, where incurred as part of qualifying R&D projects
The Benefits of R&D Tax Credits
As a powerful form of innovation funding, R&D Tax Credits can transform your business. At RDP Associates, we’re passionate about helping innovative companies realise the full potential of R&D tax credits to drive growth.
How to support your R&D Tax Credit claim
HMRC now requires supporting narratives for a company’s R&D expenditure. Submission requirements depend on the total number of R&D projects included in the claim:
– 1–3 projects: HMRC requires a narrative for each individual project, demonstrating how it meets the R&D tax credit criteria.
– 4 or more projects: HMRC requires narratives for a minimum of 3 and a maximum of 10 projects, which together must represent 50% or more of the total qualifying R&D costs.
– More than 10 projects: If more than 10 projects are needed to cover 50% or more of qualifying costs, the company must contact HMRC at [email protected] to confirm the appropriate submission approach.
Update: HMRC will issue a standard R&D tax credit claim submission form to all claimants, effective 1 April 2021.
Contact Us to Schedule a Free Assessment of Your Eligibility
So, if you want to know more about our R&D Tax Credit Guide or have a complimentary assessment of your eligibility, call us today. We offer a wide range of government funding programs as they pertain to your business operations.Â