R&D tax relief explained: how UK businesses can claim

Research and Development (R&D) tax relief encourages UK businesses to invest in innovation. The scheme allows companies to reduce their tax bill or receive a cash credit when they spend money developing new products, services or processes.

Many businesses assume R&D only applies to scientific laboratories or technology companies. In reality, a wide range of sectors qualify, including manufacturing, engineering, software, construction and life sciences.

Understanding how R&D tax relief works can help businesses recover part of the cost of innovation and support future growth.

What is R&D tax relief?

R&D tax relief is a government incentive designed to reward companies that work on advancing science or technology.

A company may qualify when it attempts to resolve technical uncertainty while developing or improving a product, process or service.

The work does not need to succeed to qualify. The key requirement is that the company attempted to achieve a scientific or technological advance.

Examples of qualifying activities include:

• Developing new software or improving system performance
• Creating new manufacturing processes
• Designing innovative engineering solutions
• Improving product materials or durability
• Developing new medical or scientific technologies

The merged R&D tax relief scheme

The UK now operates a merged R&D scheme for most companies. This replaced the previous SME and RDEC structures for accounting periods beginning on or after 1 April 2024.

Under the merged scheme, companies can claim a tax credit equal to 20 percent of qualifying R&D expenditure.

Loss-making companies may receive a payable credit instead of tax relief. The credit rate is lower after tax, though it can still provide meaningful support for innovative businesses.

A separate enhanced scheme continues to apply to certain R&D intensive SMEs, though strict conditions apply.

Which companies can claim R&D tax relief?

Any UK company that carries out qualifying research and development may claim R&D tax relief.

To qualify, the company must:

• Be subject to UK corporation tax
• Carry out activities that aim to achieve a scientific or technological advance
• Face technical uncertainty that a competent professional cannot easily resolve

R&D can take place across many industries, including:

• Manufacturing and engineering
• Software and technology
• Construction and architecture
• Pharmaceutical and life sciences
• Food and drink production

Many businesses already perform qualifying work without realising it.

What costs can be claimed?

R&D tax relief covers several categories of expenditure linked to innovation projects.

Typical qualifying costs include:

• Staff salaries involved in R&D activities
• Employer National Insurance and pension contributions
• Subcontractor costs related to R&D work
• Software used in development projects
• Consumable materials used during testing or prototyping
• Certain cloud computing costs

Accurate records help demonstrate which costs relate directly to qualifying R&D work.

Changes to R&D claims and compliance

HMRC has introduced stronger compliance measures to reduce incorrect claims.

Companies must now meet additional requirements, including:

• Submitting an additional information form before making a claim
• Providing details of the R&D projects undertaken
• Identifying the individuals responsible for the claim
• Providing supporting explanations for qualifying work

In many cases, companies must also notify HMRC in advance if they plan to submit a claim for the first time or if they have not claimed in recent years.

These rules aim to improve claim accuracy and reduce abuse of the scheme.

The benefits of claiming R&D tax relief

For businesses investing in innovation, R&D tax relief can provide several advantages.

Key benefits include:

• Reduced corporation tax liabilities
• Cash payments for loss-making companies
• Improved cash flow for development projects
• Greater support for research and innovation investment

For many growing companies, the relief provides funding that can be reinvested in new product development or technology improvements.

Common mistakes in R&D claims

Businesses often miss opportunities to claim because they misunderstand the eligibility rules.

Common issues include:

• Assuming R&D only applies to laboratories or scientists
• Failing to identify qualifying staff costs
• Poor documentation of development projects
• Submitting claims without sufficient technical explanation

Careful preparation and accurate record keeping help ensure claims meet HMRC requirements.

Planning for an R&D claim

Businesses considering an R&D claim should review their development activities and identify projects involving technical challenges.

It is helpful to document:

• The scientific or technological problem being addressed
• Why the solution was not straightforward
• The work carried out to resolve the challenge
• The staff and costs involved in the project

Clear documentation strengthens the claim and reduces the risk of HMRC enquiries.

Need advice on R&D tax relief?

R&D tax relief can provide significant tax savings for innovative businesses, though the rules require careful interpretation and accurate reporting.

David Howard supports companies across a wide range of industries with R&D tax claims, financial reporting and corporation tax planning. Our team provides clear guidance so businesses understand their eligibility and prepare robust claims.