R&D Tax Relief in the UK: Everything You Need to Know

Research and Development (R&D) tax relief is a government incentive designed to reward UK businesses that invest in innovation. It allows companies to reduce their Corporation Tax bill or receive a cash payment based on the money they spend developing new products, processes, or services—or even improving existing ones.

The aim is simple: encourage companies to innovate and grow by easing the financial burden associated with research and development activities. Yet, many businesses don’t know they qualify or think it’s only for scientists and tech companies. That’s not true.

This guide explains in simple terms who can claim, what can be claimed, and how to make a successful R&D tax relief claim.

What Is R&D Tax Relief?

R&D tax relief is a form of financial support for companies that work on innovative projects. If your company is trying to improve or develop something in your field, and there’s uncertainty about how to achieve it, then you might be eligible.

You don’t need to wear lab coats or build software to qualify. Many sectors including food production, manufacturing, engineering, and even architecture carry out qualifying R&D work every day—often without realising it.

The relief can help reduce your tax bill or provide a cash payment, depending on your company’s circumstances.

Who Can Claim R&D Tax Relief?

1. Your Company Must Pay Corporation Tax

R&D tax relief is only available to companies that pay Corporation Tax in the UK. Sole traders and partnerships don’t qualify.

2. Your Company Must Be Attempting Innovation

You must be working on a project that tries to make an advance in science or technology. This includes solving technical challenges that are not easily worked out by a professional in your field.

3. It Must Involve Uncertainty

Your work must aim to overcome a problem where the solution isn’t clear from existing knowledge or common practice.

4. You Must Own the Work

Your company must carry out the work and bear the risk. If the work is fully outsourced and you have no control, you may not be eligible.

Which Businesses Are Eligible?

Any UK company, in any industry, could qualify. This includes:

Manufacturing
Engineering
Software development
Food and beverage
Construction
Architecture
Medical research
Agriculture
Fashion and textiles

Innovation can happen in any business. Whether you’re a small bakery creating a new recipe or a firm building a custom app, you may be doing R&D.

What Projects Qualify?

For your project to qualify for R&D tax relief, it must:

Aim to make an advance in your industry
Involve technical or scientific uncertainty
Require a process of testing, trial and error, or research
Be directly connected to your business’s trade

Examples of qualifying work include:

Creating a new product or improving an existing one
Developing new software or upgrading old systems
Reducing waste or improving energy efficiency in processes
Improving logistics or operations with new methods
Building a custom machine to do a task more efficiently

What Does NOT Qualify?

You cannot claim R&D tax relief for:

Routine updates with no innovation
Work that uses standard solutions or off-the-shelf software
Market research or customer surveys
Styling or cosmetic changes that don’t involve technical problem-solving
Duplication of existing products without technical changes

What Costs Can Be Claimed?

You can claim R&D tax relief on many of the costs involved in running your project. These include:

1. Staff Costs

Salaries and wages for employees directly involved in R&D
Employer National Insurance contributions
Employer pension contributions
Bonuses (if tied to R&D work)

2. Subcontractors and Freelancers

You can claim a portion of what you pay to contractors or agencies working on your R&D project.

3. Materials and Consumables

Raw materials used during R&D
Prototypes that were built and tested
Items that were used up in the process

4. Utilities

Power, water, gas and other utility costs related to your R&D

5. Software

Software licences needed for R&D tasks
Pro-rated cost if software was used partly for R&D

6. Clinical Trials (for medical companies)

Payments to volunteers in clinical trials

7. Cloud Computing and Data

From April 2023 onwards, cloud services and data usage related to R&D are also eligible

How Much Can You Claim?

How much you get depends on the size of your business and whether you made a profit or a loss during the tax year.

For Small and Medium Businesses (SMEs):

You could get up to 33% of qualifying costs back
If you made a profit, your tax bill is reduced
If you made a loss, you could get a cash credit instead

For Large Companies:

You can claim under a scheme called RDEC (Research and Development Expenditure Credit)
You can receive around 20% of your eligible costs back as a taxable credit

How Far Back Can You Claim?

You can claim R&D tax relief for up to two years after the end of the accounting period in which the R&D work was done.

Example:
If your company year ended on March 31, 2023, you have until March 31, 2025, to submit a claim for that period.

Step-by-Step Guide to Making a Claim

Step 1: Identify Qualifying Projects

Review your work over the last two years. Did you try to solve technical problems or create new processes or products? If yes, make a list of those projects.

Step 2: Collect Supporting Information

Gather records such as:

Timesheets or notes showing staff hours spent
Receipts or invoices for materials
Notes about the problems you were solving
Evidence of testing, trials, and experiments

Step 3: Calculate Eligible Costs

Work out how much you spent on:

Staff
Contractors
Software
Materials
Utilities

Make sure you separate out any costs not related to R&D.

Step 4: Prepare a Technical Report

Write a clear report that explains:

What each R&D project was about
What technical or scientific problems you faced
What you tried and whether it worked
How your project advanced knowledge in your field

This doesn’t have to be too detailed or full of jargon—just honest and clear.

Step 5: Submit Your Claim via CT600

Use your Corporation Tax return to submit the claim:

Tick box 99 if you’re an SME
Tick box 100 if you’re using the RDEC scheme
Add the enhanced R&D expenditure to box 101
Adjust profit or loss in box 3 or 122

This can be done when filing your tax return or as an amendment.

Step 6: Wait for HMRC Review

Once your claim is submitted, HMRC may:

Approve it and issue a rebate or tax reduction
Ask questions or request more information

If your claim is clear and well-supported, approval typically happens within 4–8 weeks.

Choosing Between Tax Relief and Tax Credit

Depending on your financial situation, you may choose to:

Reduce your Corporation Tax bill (tax relief)
Or receive a cash payment (tax credit) if you’re loss-making

A good accountant or R&D specialist can help you decide which is best.

Common Mistakes to Avoid

Assuming you don’t qualify – Many businesses are eligible and don’t know it.
Missing the deadline – You only have 2 years to claim.
Poor record-keeping – HMRC wants to see proof of R&D work.
Overclaiming – Only claim for what truly relates to R&D.
Undervaluing projects – Don’t overlook small innovations or failed attempts.

How Experts Can Help

Companies like Swanson Reed specialize in helping businesses claim R&D tax relief. Here’s how working with a professional team can benefit you:

They help identify qualifying projects you may miss
They ensure you don’t make errors that could delay or reduce your claim
They write strong technical reports tailored to HMRC’s expectations
They handle communication with HMRC if questions arise
They save you time and maximize your return

Final Thoughts

R&D tax relief is one of the most generous tax incentives available to UK businesses—but it’s often underused. Many companies miss out because they think their work doesn’t qualify, or the process seems too complex.

If you’re solving problems, trying new methods, or creating new products or services, you could be eligible. Whether your business is large or small, new or established, R&D tax relief can bring valuable cash back into your business.
Visit https://www.swansonreed.co.uk/