Crowthers are specialists in the preparation of claims for research and development (R&D) Tax Relief.  We believe in ensuring that R&D Tax Relief claims are done right with the goal of submitting compliant claims that maximise the funding available to you.

 Our expert team, led by Sara Crowther, can guide your company through every step of the R&D tax relief claim process. With over 15 years’ experience in R&D Tax Relief claims, Sara runs a dedicated R&D tax relief department assisting numerous clients each year. As a Chartered Tax Adviser and regular speaker at professional tax events, Sara offers in-depth knowledge of the ever-changing R&D tax regime. Sara also holds a Law degree from the University of Nottingham, invaluable for strengthening enquiry defence reports. 

Since 2008, Sara has assisted numerous clients across diverse industries to file R&D claims and maximise tax savings. Her specialised team guides businesses through every step of the process, helping capture all eligible costs and craft robust technical submissions. Sara leads by example, known for her diligence, professionalism and dedication to excellent client outcomes.

Our team’s specialist expertise, best practices, and experience in helping numerous satisfied clients secure substantial R&D tax relief awards or defend their R&D position during compliance checks, allow us to guide you through a seamless yet fully compliant claim preparation process. This ensures you can maximise the available funding for your R&D work.

Contact Sara Crowther (Director) or Madalina Matei (Manager) to discuss how we can assist your company in accessing the full R&D Tax Relief funding you deserve.

What is R&D tax relief?

Research and Development (R&D) Tax Relief is a UK government initiative to encourage innovation. Launched in 2000, the scheme offers corporation tax relief for companies carrying out qualifying R&D projects. It is based on the company’s expenditure on R&D.

To qualify for R&D Tax Relief, your company must be registered in the UK, liable for corporation tax, and have carried out a project that seeks an advance in science or technology. It is necessary to be able to state what the intended advance is, and to show how, through the resolution of scientific or technological uncertainty, the project sought to achieve this.

Not all activity which may be considered to be R&D within the ordinary accountancy or commercial meaning of the term will necessarily be R&D for tax purposes. While the accountancy meaning is where the definition begins for the purposes of the relief, it is qualified by guidelines issued by the BEIS (for accounting periods which began before 1 April 2023) and DSIT (for accounting periods which began on or after 1 April 2023).

R&D Tax Relief Scheme – Accounting Periods Beginning Before 1 April 2024

For accounting periods beginning before 1 April 2024 the R&D Tax Relief scheme consists of two types of relief: R&D Tax Relief for Small and Medium-sized Enterprises (SMEs) and the Research and Development Expenditure Credit (RDEC).

The RDEC and SME R&D tax relief differ in terms of R&D tax relief rate, what qualifying costs can be calculated, and how the overall benefit is calculated. Their key features and differences include:

 

Key features and differences

SME Tax Relief

RDEC

 

 

 

Company size restrictions

Available to SMEs: less than 500 employees, less than €100 million in turnover or less than €86 million in gross assets, including linked/partner enterprises’ figures. 

Available to large companies and SMEs that do not qualify for the SME scheme i.e., where the R&D work has been subcontracted to the company (restrictions apply) or is subsidised, or both.

Relief rates

Eligible companies can claim an additional 86% deduction on qualifying expenditure on top of the normal 100% deduction. This means they can effectively deduct 186% of their qualifying R&D costs from their taxable profits.

If the company is loss-making, it can surrender the tax relief for a payable tax credit worth up to 10% of the surrenderable loss, or 14.5% for ‘R&D intensive companies’ (see below).

 

Companies can claim a credit of 20% of their qualifying R&D expenditure (for expenditure incurred from 1 April 2023). The credit is taxable income.

Unlike the SME relief, the RDEC credit is taxable at the normal Corporation Tax rate (19% or 25% depending on the company’s taxable profits).

The credit is offset against the company’s tax liability or, in some circumstances, is payable in cash.

Special Conditions for R&D Intensive Companies

R&D intensive companies’ are loss-making SMEs whose R&D expenditure constitutes at least 40% (for expenditure incurred on or after 1 April 2023) or 30% (for accounting periods beginning on or after 1 April 2024) of total expenditure.

N/A

Subcontracted R&D

Can be claimed under the SME scheme. Expenditure incurred on unconnected subcontractors is subject to a 65% cap.   

Unlike the SME relief option, subcontractor expenditure cannot be claimed unless it is undertaken by a qualifying body (charity, higher education institute, etc.), an individual or a firm where each member is an individual.

Contracted, subsidised or grant funded R&D

·         N/A for state-aid grants.

·         N/A for work contracted to the SME by another SME.

·         For de-minimis funding, only the value of the grant falls within the RDEC scheme, the remainder qualifies for the SME scheme.

There is no provision preventing subsidised expenditure from qualifying for R&D tax relief.

In addition, RDEC can be claimed by SMEs contracted by:

·         A large company; or

·         Any person otherwise than in the course of carrying on a chargeable trade (i.e., individual, charity, etc)

R&D Definition Rules

The rules around what constitutes R&D for tax relief purposes are issued by the BEIS (for accounting periods which began before 1 April 2023) and DSIT (for accounting periods which began on or after 1 April 2023).

Same rules apply to both schemes. 

 

In some cases, different R&D projects within your business may qualify for different types of relief. For example, if one project received grant funding, you may need to split your claim between the SME relief for other projects and RDEC for that particular project.

Both SME tax relief and RDEC are available to companies across a wide range of industries, from food science to chemical products and processes, nanotechnologies to aerospace, construction to automotive, computer science to biomedical technologies. However, an R&D project must be directly related to the company’s current trade or aimed at developing a new trade that the company intends to establish.

R&D Tax Relief Scheme – Accounting Periods Beginning On or After 1 April 2024

For accounting periods beginning on or after 1 April 2024, there is one merged scheme for all companies. The Government’s intention was to merge the SME and RDEC R&D schemes into one above the line credit scheme which broadly follows the current RDEC scheme. The merged scheme will run alongside the Enhanced R&D Intensive Support which started on 1 April 2023.  

Key features include:

  • The R&D expenditure credit rate is 20%. This is the same as the rate under the old RDEC scheme for expenditure incurred on or after 1 April 2023.
  • The R&D expenditure credit is liable to corporation tax as it is deemed to be trading income. For companies that are loss making or with total profits under £50,000 (excluding the RDEC claimed), a lower 19% notional tax restriction applies. For all other companies, the restriction remains at 25%.
  • However, loss-making SMEs whose relevant R&D expenditure (plus that of any connected companies) is at least 30% of its total relevant expenditure (plus that of any connected companies) will continue to benefit from a rate of the additional deduction of 86% and a tax credit rate of 14.5% (which is not liable to tax).  
  • There is no longer a restriction on claiming for subsidised expenditure.
  • The approach to contracted out R&D for accounting periods beginning on or after 1 April 2024 is different from the approaches used in both the old RDEC and SME schemes. The general rule is that the party who takes the decision to undertake R&D will be able to claim, as long as they are able to demonstrate that they were the party that intended or contemplated that R&D of that sort would be done.
  • If your customer is ineligible to claim, for example because it is a non-UK company, you may still be able to claim relief regardless of whether they intended and contemplated to carry out R&D.
  • You can claim 65% of a payment made for R&D to an unconnected contractor. Connected contractor costs are subject to additional rules but may be claimable up to 100% if all conditions are met.
  • There are restrictions on claiming for contracted out R&D that takes place abroad, with some exceptions.

What costs can I claim on?

The following table shows the types of expenditure that you can claim R&D tax relief on:

Cost category

SME R&D Tax Relief

RDEC

Merged Scheme and Enhanced R&D Intensive Support

Consumable items, including fuel, materials, power, and water

✔️

✔️

✔️

Payments made to volunteers involved in clinical trials for R&D projects in the pharmaceutical industry

✔️

✔️

✔️

Data licence costs and cloud computing costs (for accounting periods beginning on or after 1 April 2023)

A data licence is a licence to access and use a collection of digital data.

Cloud computing includes:

  • data storage
  • hardware facilities
  • operating systems
  • software platforms

✔️

✔️

✔️

Externally provided worker costs (65% of the relevant payments if not connected, 100% if connected)

✔️

✔️

✔️

Staff costs, including salaries, wages, pension fund contributions, and secondary Class 1 National Insurance contributions paid by the company. This includes staff involved in qualifying indirect activities, such as HR used to recruit R&D staff.

✔️

✔️

✔️

Software licence fees for R&D and a reasonable share of the costs for software partly used in R&D activities

✔️

✔️

✔️

Subcontractor costs (65% of the relevant payments if not connected, 100% if connected)

✔️

✔️

Contributions made for independent R&D

✔️

❌ (this category of expenditure no longer exists)

Expenses related to the production and distribution of goods and services

Capital expenditure

The cost of land

The cost of patents and trademarks

Rent or rates

 

With any type of R&D relief, the total eligible R&D expenditure incurred determines the potential relief. The greater a company’s investment in qualifying R&D activities, the larger the potential claim.

 When can I claim?

 R&D tax relief claims can be made:

  • Up to 2 years from the end of the period, for periods of 18 months or less; or
  • Up to 42 months from the start of the period, for longer periods.

If your tax relief claim covers more than 12 months, a separate claim is needed for each accounting period.

If you plan to claim R&D tax relief for accounting periods beginning on or after 1 April 2023, you must submit a claim notification form if:

  • It is your first time claiming; or
  • Your last claim was more than 3 years before the end of the current claim notification period.

The claim notification window starts on the first day of the accounting period and ends 6 months after the end of the period of account containing the claim. No notification is required if you claimed within the past 3 years.

 Substantiating your R&D Tax Relief Claim

HMRC has outlined 13 expectations for steps that should be taken before submitting an R&D claim in its “Guidelines for compliance“.  Working with an experienced R&D tax specialist can be invaluable in navigating this process and ensuring these expectations are met. Our team can guide and support you throughout the entire claim submission process:

  • We work closely with your science and technical teams to gather the necessary information to complete the mandatory Additional Information Form that must support any R&D tax relief claim. This includes thoroughly analysing HMRC’s current guidance and materials to ensure your R&D leads understand the definition and conditions for R&D tax relief. We also conduct site visits and / or online meetings to discuss the R&D activities.
  • We write robust reports that justify your projects’ merit, in line with HMRC’s guidance.
  • Once the advance in science or technology has been articulated, the scope of the R&D project has been defined, and the project activities which fall within the definition of R&D for tax purposes have been identified, we meticulously apply the CTA2009 tax rules to help you identify which of your R&D project expenditures may qualify for relief. Our expert team can provide clarify on any uncertain areas. We will also work with you to apportion the relevant expenditure across the qualifying projects (based on project records) and to maximise the financial impact of your relief or credit across your company or group.
  • Alongside the Additional Information Form, we prepare a comprehensive report detailing the R&D calculations and relevant apportionments. We also assist in collating all necessary project records in case HMRC requires additional information.
  • We handle any HMRC queries to avoid adjustments to your claim.
  • Our team remains up-to-date with the frequent changes to legislation to ensure your claim is robust and compliant.