Business experts

Expert advice: A beginner's guide to R&D credits

Written by Peter Doe on .

Peter Doe


The government has set aside a pot of money specifically to help businesses invest in research and development, and while many larger businesses have taken advantage of Research & Development Tax Credits, many smaller businesses are missing out – simply because they don’t know the credits exist.

In the last year, UK businesses claimed £1.36 billion in R&D Tax Credits – all money which had been spent on developing new products, processes, and technology, and which has gone back into businesses to be reinvested.

It is because the UK government wants to encourage innovation to secure the economic future of our businesses.

There are still plenty of R&D Tax Credits to be claimed, so it is worth checking if your business can claim any of this support.

R&D is a way to claim back money spent on research and development activities within your business. If you pay Corporation Tax, you can claim back up to 36.2 percent of development costs spent with the aim of creating a more innovation business culture or bringing new products and services into being.

Some businesses have been able to claim back hundreds of thousands – making a huge impact on the business as a whole.

Who can apply for R&D Tax Credits?

The scheme runs two slightly different versions depending on the size of the business applying. The SME scheme is based on qualifying costs, whereas the R&D Expenditure Credit (RDEC) for larger companies can include claims against things like staff costs and National Insurance contributions. The best way to find out what scheme best suits your organisation is to speak to a tax consultant.

However, the likelihood is that your business will be eligible in one way or another, as long as you have invested in some form of innovation.

The general criteria is that businesses must be a limited company, pay Corporation Tax, and must have carried out some research and development activities which qualify for the tax credits, and which the business has spent money on.

The criteria are deliberately vague to make it as accessible as possible, and there R&D opportunities for every single sector, so it is advantageous to speak with an R&D tax consultant to see if any of your business activities fall within these specifications.

What is the application process?

Although the scheme is set up so as many businesses as possible can benefit, the actual claiming process can be trickier than it appears at first sight.

The main piece of paperwork is the CT600 Corporation Tax Return, where you need to complete the relevant boxes. However, leaving it at that is likely to leave you open to an HMRC enquiry.

The R&D tax credit applications go to specialist units across the country and are looked at by inspectors.

Claiming your R&D tax credits is actually a fairly straightforward process – once you know how it works. In theory, all you need to do is fill in the appropriate boxes on your CT600 Corporation Tax Return for the relevant amount and submit it to HMRC.

However, if you just do that, you will probably find yourself facing an HMRC enquiry pretty quickly. R&D tax credits at an SME level are dealt with by inspectors at a number of specialist units around the country. The RDEC scheme is dealt with by a specialist department within HMRC.

If HMRC have any suspicions that mistakes have been made anywhere in your tax information they can launch a further investigation, and if you’ve over-claimed, you can be hit with a 30 percent penalty.

To avoid this, you need to supply accurate supporting documentation to demonstrate what activity you have carried out and how it fulfils the R&D criteria and, what you have done to make sure you only claim for eligible costs. The claim also needs to be made within two years of the end of the accounting period in which the money was spent.

At this point, it is wise to work with an R&D tax consultant to ensure all your paperwork is in order and provides the necessary proof to satisfy HMRC as to the validity of your claim. A specialist tax consultant will also make sure you haven’t missed any costs you are eligible to claim and that you haven’t accidentally included any ineligible activity.

By doing this, you can rest easy knowing HMRC have all the information they need and that your tax credits will be on the way.

Peter Doe is client director at Corsham-based accountancy firm Purple Lime