What are R&D tax credits?

R&D tax credits are a UK tax incentive designed to encourage companies to invest in research and development. This beginner’s guide from tax experts here at Alexander & Co will explain how businesses can claim payable cash credits as a proportion of their R&D expenditure or reduce their tax bill.

Think your business might be eligible for R&D tax credits? Get in touch with our team.

What do R&D tax credits consist of?

Many businesses are unaware of the potential to earn R&D tax credits, even though it’s possible for many to claim back thousands of pounds from HMRC. Businesses in any sector are eligible to claim credits, as long as they have a project or part of their business that qualifies for R&D.

How do R&D tax credits work?

R&D tax credits are a valuable form of government tax relief that rewards UK companies and encourages them to invest in innovation. Therefore, companies that spend money on developing or enhancing new processes, products or services can get a reduction in corporation tax or be entitled to a cash payment.

Are they any examples of R&D tax credits?

From the government website, examples include:

“An advance in science or technology means an advance in overall knowledge or capability in a field of science or technology (not a company’s own state of knowledge or capability alone).”

“This includes the adaptation of knowledge or capability from another field of science or technology in order to make such an advance where this adaptation was not readily deducible.”

What are R&D tax credits worth?

Out of the UK companies that receive the credit rate, 80% of them find it an essential bonus for their business growth. Furthermore, out of the UK companies that receive tax credits via R&D, almost half of them will use it to hire new staff to further their business growth.

44% of businesses have said they were surprised at how much they received. The same people used the extra money to help the company grow.

What qualifies as R&D?

Your business can be any size in order to qualify for R&D tax credits. You can qualify if you are creating new processes, services, and products. This is also true for businesses looking to modify and enhance existing services.

The government website also states “Even if the advance in science or technology sought by a project is not achieved or not fully realised, R&D still takes place”.

Use our complimentary service to check if you are eligible to claim.

What R&D costs can I claim for?

When applying for R&D tax credits, the following is the usual qualifying expenditure:

• Expenditure on freelancers and subcontractors
• Expenditure on staff, including the employer’s NIC, salaries, and pension contributions
• Expenditure on consumables and materials, including light, heat, and power that are transformed or used up by the R&D process
• Expenditure on types of software

Always be honest and clear when filling out your form. Some elements of your claim may need further discussion as they can be up for interpretation.

R&D tax credit changes

R&D tax credits have seen a variety of updates since their original inception. Changes to R&D tax credits in 2023 include an enhanced credit for R&D and an additional information requirement that must be submitted with a claim. For the full list of recent changes, read our R&D August changes blog.

Manchester & London accountants for R&D tax relief advice

If you need help with all the R&D rules and requirements, don’t hesitate to contact us. Our R&D tax experts will provide you with sound advice for claiming R&D credits, as well as many other government incentives.

Get in touch with our expert teams in Manchester and London to find out more.