R&D Tax Credits
Supporting your business through innovation
Companies developing or appreciably improving products, processes, materials, software or services may qualify for Research and Development (R&D) tax relief.
At BAND, we work with your technical and finance teams to assess eligibility, identify qualifying expenditure and prepare robust, evidence-based claims in accordance with the legislation and HMRC guidance.
We support companies across a range of sectors, including manufacturing, engineering, construction, software, artificial intelligence, life sciences, energy technology, electronics, food and drink, product development and environmental technology.
Our wider expertise in the creative industries and built environment enables us to understand the technical context of your projects and identify activities that may satisfy the scientific or technological criteria for R&D tax relief.
Understanding the merged RDEC scheme
For accounting periods beginning on or after 1 April 2024, the merged Research and Development Expenditure Credit (RDEC) scheme is the principal R&D tax relief scheme for companies of all sizes.
Eligible trading companies within the charge to UK Corporation Tax can claim a taxable expenditure credit of 20% of qualifying R&D expenditure, whether profitable or loss making.
For example, £100,000 of qualifying expenditure generates a gross credit of £20,000. Where the credit is subject to Corporation Tax at 25%, the net benefit is £15,000. The company’s tax position and the statutory credit utilisation rules determine the ultimate benefit and its availability.
Enhanced R&D Intensive Support (ERIS) remains available to eligible loss-making SMEs that meet the R&D intensity condition.
Does your work qualify?
A qualifying project must seek an advance in science or technology through the resolution of scientific or technological uncertainty.
The advance must concern overall knowledge or capability in the relevant field, rather than the company’s knowledge or capability alone. Scientific or technological uncertainty exists where whether something is scientifically possible or technologically feasible, or how to achieve it in practice, is not readily available or deducible by a competent professional working in the field.
Qualifying activities may include work to develop or appreciably improve products, processes, materials, software or services, together with qualifying indirect activities. A project does not need to achieve its intended advance to qualify.
Routine development, commercial uncertainty and advances solely in the arts, humanities or social sciences do not qualify. Companies operating in creative sectors may nevertheless undertake qualifying scientific or technological R&D.
Which costs can be included?
Subject to the statutory conditions, qualifying expenditure may include:
- Staffing costs, including salaries, employer National Insurance contributions and pension contributions.
- Payments for externally provided workers.
- Payments for qualifying contracted out R&D.
- Consumable items, including materials, power, water and fuel.
- Software licences, qualifying data licences and cloud computing services.
- Payments to clinical trial participants.
Expenditure must fall within an eligible category and be attributable to qualifying activities. Appropriate apportionment is required where costs relate to both qualifying and other activities. Relevant payment conditions, restrictions and statutory percentage limits also apply.
Claiming R&D Tax Credits
It’s advisable to partner with experienced advisors familiar with the legislation, who can assess the specifics of your work and determine your eligibility. The process involves several steps, including creating a technical report outlining your qualifying activities. Additionally, you’ll need to prepare a financial report that documents your incurred costs, known as qualifying expenditures, to complete your claim.
How BAND helps
We support you throughout the claim process:
ASSESS
Review your projects, the applicable scheme, entitlement and statutory deadlines.
GATHER
Work with your competent professionals and finance team to obtain supporting technical and financial evidence.
PREPARE
Identify qualifying expenditure, calculate the relief and document the advances sought, uncertainties encountered and activities undertaken.
REVIEW & SUBMIT
Review the claim with you, complete the required HMRC submissions and include the claim in your Company Tax Return or an amendment to that return.
SUPPORT
Assist with HMRC enquiries and advise on maintaining appropriate records for future claims.
FAQs About R&D Tax Credits:
Can we claim for contracted out R&D?
Potentially. Entitlement depends on the statutory contracting rules, including whether the customer intended or contemplated that R&D would be undertaken when entering into the contract.
The contractual terms and surrounding circumstances must be considered. Neither commissioning a project nor undertaking the R&D automatically establishes entitlement. We assess the arrangements to determine which company can claim and the expenditure eligible for relief.
Can overseas expenditure qualify?
Under the merged scheme, contractor payments generally qualify only to the extent that the relevant R&D activities take place in the UK. Payments for externally provided workers are generally subject to UK PAYE and Class 1 National Insurance requirements.
Limited statutory exceptions apply. These restrictions do not impose a blanket exclusion on all categories of expenditure incurred overseas.
Does grant funding affect eligibility?
Subsidised expenditure is not automatically excluded under the merged RDEC scheme. Grant funded projects and their associated expenditure must still satisfy the applicable eligibility and expenditure conditions.
Is enhanced support available for loss making SMEs?
ERIS may be available to an eligible SME with a trading loss for tax purposes before the additional R&D deduction.
The R&D intensity condition normally requires relevant R&D expenditure to represent at least 30% of total relevant expenditure, calculated under the statutory rules and taking connected companies into account. A grace period may apply where the prescribed conditions are met.
ERIS provides an additional deduction of 86% of qualifying expenditure and a payable credit of 14.5% of the surrenderable loss, subject to the applicable conditions and cap. The same expenditure cannot be claimed under both ERIS and merged RDEC.
What are the claim deadlines?
Some companies must submit a claim notification within six months of the end of the relevant period of account. This can affect first time claimants and companies that have not claimed within the prescribed timeframe, subject to exceptions.
The normal claim deadline is two years from the end of the period of account, with different rules for periods exceeding 18 months.
An Additional Information Form must be submitted before the Company Tax Return or amendment containing the claim, including where both submissions are made on the same day.
Will the credit result in a cash payment?
The credit is applied through a statutory sequence that may discharge tax liabilities and result in a payable balance.
A PAYE and National Insurance cap generally limits the credit available for the accounting period to £20,000 plus 300% of the company’s relevant PAYE and National Insurance liabilities, subject to exemptions and adjustments for shorter periods. Under merged RDEC, credit exceeding the cap is carried forward.
Let’s talk about your R&D
Whether you are preparing an initial claim or reviewing your existing approach, BAND can help you assess eligibility, establish entitlement and prepare a substantiated claim.
