R&D Tax Credits Explained: How the Relief Works and Who Can Claim

R&D tax credits are one of the most valuable — and most underclaimed — reliefs available to UK companies. If your business is solving technical problems, you may be leaving money on the table. Here’s how the relief works and who can claim.

What are R&D tax credits?

R&D tax credits are a government incentive that rewards limited companies for qualifying research and development. The benefit comes either as a reduction in your Corporation Tax or, for loss-making companies, a cash payment from HMRC.

The aim is to encourage innovation — and the relief is far broader than most people assume. It’s not just for labs and tech startups; companies in software, engineering, manufacturing, food production, construction and many other sectors claim successfully.

Who can claim?

To qualify, your company must be seeking an advance in science or technology by resolving scientific or technological uncertainty — work where the outcome wasn’t readily deducible by a competent professional in the field.

That can include:

• Developing new products, processes or software
• Improving existing ones in a non-trivial way
• Overcoming technical problems where the solution wasn’t obvious

If your team has ever been genuinely unsure whether something was technically possible and had to work it out, there may be a claim.

What costs qualify?

Qualifying expenditure typically includes:

• Staff costs for people working on the R&D
• Subcontractor and externally provided worker costs
• Software and certain cloud/data costs
• Consumables used up in the R&D (materials, utilities)

Routine work, or simply applying existing techniques without genuine uncertainty, generally doesn’t qualify — which is where careful scoping matters.

How you claim

You make the claim through your Company Tax Return (CT600), supported by a technical and financial report setting out the projects and costs. For recent periods you also need to submit an additional information form to HMRC in advance, and certain companies must pre-notify a claim.

There are time limits, and importantly, HMRC has significantly increased its scrutiny of R&D claims in recent years — so a well-evidenced, accurately-scoped claim is more important than ever. A weak or over-stated claim can now invite enquiry.

The rules have changed

The R&D schemes have been reformed recently — the old SME and RDEC schemes have largely merged, with separate enhanced support for loss-making R&D-intensive SMEs. Rates and rules have shifted, so it’s important to base any claim on the current position rather than older guidance.

Claim what you’re entitled to — properly

R&D tax credits can be substantial, but the combination of broad eligibility, changing rules and tougher HMRC scrutiny means claims need doing carefully and credibly. Our R&D tax credits service identifies your qualifying work, scopes the costs accurately, and prepares a robust claim that stands up to scrutiny — and our accountants for startups make sure it fits with your wider accounts and Corporation Tax. If you’re innovating, it’s well worth a conversation.