Skip to main content

R&D Tax Breaks: Have You Claimed Yet?

Innovation is essential in any business. Yet the cost of research and development (R&D) can quickly eat into a company’s finances. This is why the government has created tax credits and relief especially for businesses that invest in R&D – but few organisations are aware of it.

If you’re conducting research and development in your business, R&D tax relief and credits can be a godsend for your finances. Below, we sum up what is classed as R&D and how to claim the money you’re owed.


How does HMRC define ‘research and development’?

You’ll have to meet government standards in order to qualify for R&D tax credits and relief. So what’s classified as eligible? According to the HMRC website, R&D is “part of a specific project to make an advancement in science or technology.” This must relate to the trade you’re in or an industrial field the organisation is trying to enter.

Innovation can be successful, or the project might have failed but still tried to “overcome uncertainty” surrounding a problem. You have to prove the intent behind such investment, which also has to solve something that contemporary experts can’t figure out on their own. Social sciences don’t count. It must be technical – anything to do with machinery, chemicals, electronics, kinetics or material tests.


The two main levels of tax relief

Any business can theoretically use R&D to enhance their purpose and create an advance in their overall field. Yet HMRC splits tax benefits into two brackets depending on the size and ambition of your company: tax credits and tax relief.

This differentiation is designed to help smaller businesses take more risks, as the rewards are relatively greater than those for big organisations.

Here’s how the two types are broken down:

  • SME R&D relief: To qualify, you need less than 500 employees, and either a turnover of less than €100m or a balance sheet below €86m. 100% of the costs are tax-deductible. There’s an added benefit, though, because you get an extra 130% of the same qualifying costs taken from your annual profit. That means 230% of the R&D price tag is claimable.
  • Research and development expenditure credit: Any company beyond the limits outlined above receives an 11% tax credit on their R&D. This also applies to SMEs who’ve been subcontracted by a larger company.

Despite the unique status of each, you claim for them in the same form – the CT600. If you make a claim on R&D expenditure on your Self Assessment tax return, it’ll be rejected. Always complete and submit the right paperwork.


What else do you need to think about?

Above all else, you’ll have to prove that R&D is necessary: that’s the golden rule. Even if you’ve made a loss, or the research didn’t go as planned, state the variables you were trying to control and the purpose for which that was done.

It’s not just the direct cost of research you can claim for, either. You’re able to include staff costs, some subcontractor fees, and any utilities and materials you may have used up when carrying out the R&D. Just remember to show that no more than 65% of the costs were spent on external staff or contract hires, otherwise you may not be eligible.

It might sound confusing at first, but HMRC released a video in 2016 (below) that tells you what to include, so spare a few minutes to get the full picture.

Share this content

SimpleTax is a cloud-based app for Self Assessment tax return submission, verified by HMRC. See how it might boost your expense, income and tax management with this helpful video.

Leave a Reply

Register with Informi today:

  • Join over 30,000 like-minded business professionals.
  • Create your own personalised account with curated reading lists and checklists.
  • Access exclusive resources including business plans, templates, and tax calculators.
  • Receive the latest business advice and insights from Informi.
  • Join in the discussion through the comments section.