Research & Development Tax Reliefs: At a glance

What is Research and Development (R&D) relief? What is the Merged RDEC scheme? What is the SME credit scheme? What is the Enhanced R&D Intensive Support (ERIS) scheme? Which R&D Relief can you claim? What are the rates of relief?

This is a freeview 'At a glance' guide to Research and Development (R&D) relief.

Subscribers, see Research & Development (R&D) Relief for your detailed version of this guide.

At a glance

The Corporation Tax relief available for qualifying Research & Development (R&D) expenditure will depend on the timing of the R&D expenditure and the size of the company: 

Other reliefs

Rate of R&D Relief 

The rate of R&D relief depends on when the R&D expenditure was incurred and which form of tax relief applies:

Relief

 From 1 April 2024 From 1 April 2023 From 1 April 2020 From 1 Jan 2018 From 1 April 2015 From 1 April 2014  From 1 April 2013
Small or Medium-sized Enterprise (SME) R&D Credits Scheme (Accounting periods beginning before 1 April 2024. 

Enhanced deduction rate

 

 186% 230% 230%

230%

225%

225%

Payable credit*

 10% 14.5% 14.5%

14.5%

14.5%

11%
Enhanced R&D Intensive Support (ERIS) scheme
Enhanced deduction rate 186% 186%  
Payable credit: Loss-making R&D intensive company* 14.5% 14.5%
R&D intensive criteria: qualifying R&D expenditure as a % or more of its total expenditure** 30% 40%
R&D Expenditure Credit (RDEC) (Accounting periods beginning on or before 31 March 2024)

Above-the-line expenditure credit (RDEC) 

   20% 13% 12%

11%

10%

9.1%
Notional loss notional tax rate applied to loss-makers in the merged scheme 25%          
Merged RDEC Scheme (Accounting periods beginning on or after 1 April 2024) 
Above-the-line expenditure credit (RDEC)  20%  
Notional loss: Notional tax rate applied to loss-makers and small profit-makers  19%

*Payable credits are subject to a cap from 1 April 2021.

**Loss-making R&D intensive companies are those whose qualifying R&D expenditure constitutes at least 30% (40% for FY 2023) of total expenditure

***Small profit-makers are companies with total profits chargeable to corporation tax of less than £50,000, excluding the RDEC claimed. A lower rate of notional tax restriction applies. For all other companies the restriction will continue to apply at the main rate of corporation tax 25%

PAYE Cap on payable credits

There is a cap on claims for payable credits under both the SME R&D Credit Scheme, ERIS Scheme and the new Merged RDEC scheme. However, the restriction does not apply to claims below a threshold of £20,000.

  • The cap is the threshold amount plus three times the company’s total PAYE and National Insurance Contributions (NICs) liability for that year.
  • An exemption for genuine R&D businesses.

R&D: SME Tax Credit scheme

What is an SME?

The definition of an SME is taken as a company with fewer than 500 employees and a turnover limit of €100 million or a balance sheet total not exceeding €86 million.

Conditions to claim the relief 

To claim relief, a company must have been engaged in Qualifying R&D activity and then satisfy several specific conditions.

  • The R&D must be relevant R&D (see below). 
  • The company must have incurred qualifying expenditure. 
  • The company must be a going concern.
  • Any single R&D project must not receive Total aid of more than €7.5m.

Definition of R&D

Research and development means activities that fall to be treated as research and development in accordance with Generally Accepted Accounting Practice (GAAP) or International Accounting Standards (IAS).

 The accountancy definition is then modified for tax purposes by the Department for Science, Innovation & Technology (DSIT) Guidelines. The DSIT Guidelines apply for accounting periods beginning on or after 31 March 2023. 

  • R&D for tax purposes takes place when a project seeks to achieve an advance in science or technology.
  • The activities which directly contribute to achieving this advance in science or technology through the resolution of scientific or technological uncertainty are R&D.
  • Certain qualifying indirect activities related to the project are also R&D. Activities other than qualifying indirect activities which do not directly contribute to the resolution of the project’s scientific or technological uncertainty are not R&D.

The DSIT Guidelines take precedence if there is a conflict with the accounting definition. 

Relevant R&D 

R&D is relevant R&D where it is: 

  • Related to a trade carried on by the company.
  • Related to a trade which is intended trade to be carried on by the company.

Research and development is related to a trade carried on by a company if it may lead to or facilitate an extension of the trade, or is of a medical nature which has a special relation to the welfare of workers employed in the trade.

Qualifying Expenditure

The company must have incurred qualifying expenditure on relevant R&D projects.

  • Qualifying costs must have been incurred and cannot be of a capital nature. Revenue costs that have been put to the balance sheet can still be included within the R&D Claim. Capital costs relating to R&D work qualify for capital allowances at 100%.
  • Joint ventures: R&D may be carried out in a joint venture. In this situation, each company bears its own expenditure, so the treatment is the same as for each company making its own claim.

Qualifying revenue costs include:

There are special rules for:

To claim R&D relief: summary

  1. Make an application for Advanced assurance (new claimants, if eligible).
  2. Make an advanced Claim Notification (unless a claim has already been made three years prior to the claim notification deadline), within six months after the end of the accounting period.
  3. Submit an Additional information form with your CT600 or earlier
  4. Claim tax relief via your Corporation Tax computation and the CT600 and attach your R&D Report

See How to claim: R&D Reliefs

The R&D report

A report should be filed as part of the company tax return as it is current HMRC practice to open an enquiry where no report is supplied. 

Assistance from HMRC

HMRC has several specialist units across the UK which are available to assist with R&D claims.

HMRC's R&D Advance Assurance scheme for companies claiming R&D for the first time. Where assurance is given, the company will face no further enquiries into its claims for the first three accounting periods.

Useful guides on this topic

See Subscriber version of this note.

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Need assistance?

Making a complete and successful R&D claim takes times and requires know-how. Contact the Virtual Tax Partner support service for cost-effective assistance in:

  • Starting a claim.
  • Planning a claim.
  • R&D start-ups.
  • Any other queries on R&D.