What is R&D Tax Relief - and Could Your Business Qualify?
What counts as R&D for tax purposes?
R&D tax relief is one of the most underused reliefs available to UK businesses - largely because most business owners assume it only applies to laboratories, tech startups, and pharmaceutical companies. In reality, HMRC's definition of qualifying R&D is considerably broader. The key test is whether your business has sought to achieve an advance in science or technology by resolving a scientific or technological uncertainty that was not readily deducible by a competent professional in the field. In plain terms: if your business has invested time and money solving a technical problem that was not straightforward, you may well qualify.
Who can claim?
R&D tax relief is available to UK limited companies that are liable for corporation tax. Sole traders and partnerships cannot claim directly, though they may be able to benefit through other structures. There is no minimum size requirement - small and micro businesses can and do make successful claims. We have helped clients in construction, manufacturing, food production, professional services, and software development claim R&D relief on projects that the business owners had not initially considered eligible.
What costs are eligible?
Qualifying costs typically include staff costs for employees working on R&D activities, subcontractor costs (subject to limits), consumable materials used in the R&D process, and software directly used in R&D. Overheads associated with the R&D activity may also qualify on an apportioned basis. The claim is made through your corporation tax return and can result either in a reduction to your tax liability or, for loss-making companies meeting certain criteria, a cash repayment from HMRC.
How has the scheme changed?
R&D tax relief rules have tightened considerably since 2023. The previous SME and RDEC schemes have been merged into a single scheme for most companies from April 2024. The rates of relief have changed, and HMRC has significantly increased its scrutiny of claims - with more pre-payment enquiries and a greater focus on the quality of technical evidence supporting the claim. This means that making a well-documented, properly structured claim is more important than ever. Claims that were straightforward a few years ago now require more rigour and narrative to withstand HMRC review.
Is it worth exploring for your business?
The honest answer is that it costs nothing to find out. If you have invested in developing something new, solving a problem that was not straightforward, or improving a process in a technically meaningful way, it is worth having a conversation about whether a claim might be possible. We can give you an initial view without any commitment on your part and pass you on to our specialist R&D advisors if we feel it would be beneficial. Get in touch with our Edinburgh or Glasgow team to arrange a call.