Frequently asked questions


Research and development tax credits is an incentive where UK Limited companies can receive a reduction or rebate on their corporation tax for monies spent on eligible R&D activities. The research and development (R&D) tax credits incentive was established by the Government in 2000, supporting businesses of all different sizes to grow and helping the UK economy to grow through innovation.

Knowing which projects actually qualify for R&D tax relief (and those that don’t) and what expenses can be claimed (and those that can’t) are the areas where most companies are looking for advice. This is important to maximise the claim value. What CAN be claimed for: • Utilities (Gas, Electricity, Water). • Salaries and Wages. • Employer’s NI Contributions. • Employer’s Pension Contributions. • Materials and wastage consumed during the project. • Prototypes created. • Subcontractors invoices. • Software Licenses.

Once the application has been produced and finalised by yourself, it is uploaded and submitted with your corporation tax return. As soon as HMRC receive the information it is sent to the specialist incentives unit whereby it is treated accordingly. The supporting information and calculations submitted are reviewed and processed within a timely manner. Tax reductions are processed immediately and will show up within 24 hours. Tax repayments or payable credits are issued within 4 weeks and depending on the method chosen, you can expect a bank deposit or a cheque in the post.

Under the SME scheme, for expenditure incurred on or after 1 April 2014, the company may surrender the R&D loss for a payable tax credit of 14.5% (previously 11% from 1 April 2012). Any unsurrendered or unutilised losses under either the SME or RDEC schemes may be carried forward to be set against future years trading profits under the normal corporation tax rules.

HMRC aims to deal with 95% of payable tax credit claims within 28 days of receiving the claim.

There is no additional record keeping requirement specifically for the purposes of claiming R&D relief. You should be able to give a summary of the R&D project undertaken and explain how the project is R&D within the tax relief definition. It would be helpful if you provide this information in a short report at the time of making your claim. Focus on the advances being sought and the uncertainties faced rather than just a description of the finished product. Include a breakdown of the expenses that qualify for relief

The costs of preparing and registering a patent are not R&D — they are the costs of protecting the completed R&D. However, the Patent Box enables companies to apply a 10% rate of Corporation Tax to profits from its patented inventions after 1 April 2013.

A subcontractor is a person paid by the R&D company to carry out a specific R&D activity. An externally provided worker is an individual who provides or is under an obligation to provide their services personally to the R&D company under the terms of a contract between them and the staff provider. The individual will be paid by the staff provider but work under the R&D company’s direction. The company pays the staff provider.

HMRC aims to deal with 95% of payable tax credit claims within 28 days of receiving the claim.

There is no additional record keeping requirement specifically for the purposes of claiming R&D relief. You should be able to give a summary of the R&D project undertaken and explain how the project is R&D within the tax relief definition. It would be helpful if you provide this information in a short report at the time of making your claim. Focus on the advances being sought and the uncertainties faced rather than just a description of the finished product. Include a breakdown of the expenses that qualify for relief

There is no additional record keeping requirement specifically for the purposes of claiming R&D relief. You should be able to give a summary of the R&D project undertaken and explain how the project is R&D within the tax relief definition. It would be helpful if you provide this information in a short report at the time of making your claim. Focus on the advances being sought and the uncertainties faced rather than just a description of the finished product. Include a breakdown of the expenses that qualify for relief

A subcontractor is a person paid by the R&D company to carry out a specific R&D activity. An externally provided worker is an individual who provides or is under an obligation to provide their services personally to the R&D company under the terms of a contract between them and the staff provider. The individual will be paid by the staff provider but work under the R&D company’s direction. The company pays the staff provider.

Under the SME scheme, for expenditure incurred on or after 1 April 2014, the company may surrender the R&D loss for a payable tax credit of 14.5% (previously 11% from 1 April 2012). Any unsurrendered or unutilised losses under either the SME or RDEC schemes may be carried forward to be set against future years trading profits under the normal corporation tax rules.

HMRC aims to deal with 95% of payable tax credit claims within 28 days of receiving the claim.

There is no additional record keeping requirement specifically for the purposes of claiming R&D relief. You should be able to give a summary of the R&D project undertaken and explain how the project is R&D within the tax relief definition. It would be helpful if you provide this information in a short report at the time of making your claim. Focus on the advances being sought and the uncertainties faced rather than just a description of the finished product. Include a breakdown of the expenses that qualify for relief

A subcontractor is a person paid by the R&D company to carry out a specific R&D activity. An externally provided worker is an individual who provides or is under an obligation to provide their services personally to the R&D company under the terms of a contract between them and the staff provider. The individual will be paid by the staff provider but work under the R&D company’s direction. The company pays the staff provider.

Apart from large national accountancy practices few accountants have any experience submitting R&D tax credits or dealing with HMRC’s R&D Specialist Units in Leicester, Manchester or Portsmouth. Also if you are simply telling your accountant what to claim then it’s highly likely you’ll be significantly understating the actual R&D undertaken. Counting King R&D Consultants take the opposite approach where we’ll be probing your company’s activities on a technical level and prompting you to reveal the true extent of your company’s R&D. This can be achieved without taking up valuable work time using the Counting King R&D Consultants Claim Portal. Even if you’ve already submitted a claim with an accountant we can give you a free audit for the last two calendar years from the end of your company’s financial period.

Yes, however the EU notification status of the grant will affect under which R&D scheme you can claim. Most grants are ‘notifiable’ therefore both SMEs and large companies can claim under the Large Company Scheme or the RDEC scheme on the gross qualifying Expenditure.

Your grant provider will be able to tell you whether or not the grant/subsidy is notified.

The costs of preparing and registering a patent are not R&D — they are the costs of protecting the completed R&D. However, the Patent Box enables companies to apply a 10% rate of Corporation Tax to profits from its patented inventions after 1 April 2013.

Under the SME scheme, for expenditure incurred on or after 1 April 2014, the company may surrender the R&D loss for a payable tax credit of 14.5% (previously 11% from 1 April 2012). Any unsurrendered or unutilised losses under either the SME or RDEC schemes may be carried forward to be set against future years trading profits under the normal corporation tax rules.

HMRC aims to deal with 95% of payable tax credit claims within 28 days of receiving the claim.

There is no additional record keeping requirement specifically for the purposes of claiming R&D relief. You should be able to give a summary of the R&D project undertaken and explain how the project is R&D within the tax relief definition. It would be helpful if you provide this information in a short report at the time of making your claim. Focus on the advances being sought and the uncertainties faced rather than just a description of the finished product. Include a breakdown of the expenses that qualify for relief

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Glossary

  • Appreciable improvement

    To change or adapt the scientific or technological characteristics of something o the point where it is ‘better’ than the original. The improvement should be more than minor or routine upgrading and should represent something that would generally be acknowledged by a competent professional in that field as a genuine and non-trivial improvement.

  • Appropriate proportion

    the expenditure claimed by the company for R&D must be representative of the amount of time spent carrying out qualifying R&D activity. The company must be able to demonstrate that costs have been calculated to remove any elements that were not incurred during the R&D process.

  • Competent professional

    an expert working within the field of science or technology in which the advance is being sought.

  • Consumable items

    Where R&D activity results in items being wholly used up or transformed within the process these are consumable items and may be eligible for relief. However, from expenditure incurred on or after 1 April 2015 where those items are incorporated into the final product and sold then the costs of those items will not be eligible for relief.

  • Corporation Tax

    A limited company must pay Corporation Tax on profits from doing business, however the amount of Corporation Tax you pay may be reduced if you are undertaking relevant R&D activity.

  • Externally provided workers (EPW)

    Workers are provided through a staff provider. The staff provider is required to operate PAYE in relation to individual workers supplied to a client.

  • Filing date

    The date by which a company has to submit its tax return to HMRC. The date will be shown on the notice issued to the company. Any amendment to a tax return must be submitted no later than 12 months after the filing date.

  • Notifiable State Aid

    State Aid is granted by public authorities through state resources to provide assistance to an organisation. Many companies receive State Aid as a contribution towards their research and development activity. If your company receives State Aid then HMRC needs to know as it can affect the amount you can claim in R&D tax relief. Your grant notification documents will say it the grant is notifiable State Aid or not.

  • Prototype

    An original model constructed to include all the technical or scientific characteristics of the new product or process determined by the R&D undertaken within a project.

  • R&D

    Research and Development for tax purposes takes place when a project seeks to achieve an advance in science or technology. The work is undertaken on a systematic basis in order to resolve technical or scientific uncertainty and aims to advance the level of knowledge in a particular field of science beyond the level known before the research and development took place.

  • R&D project

    The R&D project is not the project to develop the product. See paragraph 19 of the Department for Business, Energy and Industrial Strategy (BEIS) guidelines (formerly Business Innovation and Skills {BIS}) which defines the “project” for R&D purposes. We very often see claims stating that the advance is the creation of a project which does x, y, or z (and where the claim is based on the costs of creating that product).That is not the correct test. The specific advances in science and technology with that (commercial) project must be identified. Each such specific advance will be a separate R&D project. Only the costs of resolving the scientific or technological uncertainties linked to each of those advances will qualify.

  • Readily deducible

    Where the knowledge or capability is publicly available or known by competent professionals working in the field.

  • Science

    Science is the systematic study of the nature and behaviour of the physical and material universe. Work in the arts, humanities and social sciences, including economics, is not science for the purpose of these guidelines. Mathematical techniques are frequently used in science but mathematical advances in and of themselves are not science unless they are advances in representing the nature and behaviour of the physical and material universe.

  • SME

    A small or medium sized enterprise.

  • SME scheme

    You can only claim under the scheme for SMEs if your company meets the definition of a SME for R&D tax relief purposes. You can only claim R&D tax relief as a SME if your company is a going concern and not in administration or liquidation when you make your claim. If you’ve made a claim and the company then ceases to be a going concern you can’t get a tax credit.

  • Technology

    Technology is the practical application of scientific principles and knowledge, where ‘scientific’ is based on the definition of science above.

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