Debunking 5 myths about R&D tax credits

R&D tax relief is one of the UK’s main incentives for encouraging scientific and technological innovation, yet it is often misunderstood. Much of the information online reflects outdated rules or inaccuracies about how HMRC assesses claims in practice. 

This article addresses five common R&D tax credit myths and clarifies them by referencing current HMRC guidance and Department for Science, Innovation and Technology’s guidelines on the meaning of R&D for tax purposes. 

What are the most common R&D misconceptions?

Many misconceptions about R&D tax relief arise from outdated guidance, oversimplified explanations, or assumptions that have been carried over from earlier versions of the R&D claiming scheme. Legislative changes, particularly those applying to accounting periods beginning on or after 1 April 2024, have also contributed to confusion within the R&D tax credit sector.

Relying on incorrect assumptions can lead to non-compliant claims or missed opportunities. These 5 myths reflect some of the most common areas where businesses misunderstand how R&D tax relief is applied under current UK rules.

Myth 1: R&D is just for scientists in white coats and laboratories

This is a common R&D tax credits misconception. R&D tax relief is not limited to scientific research or laboratory work. In fact, under the DSIT Guidelines, R&D takes place where a company seeks to achieve an advance in science or technology and works to resolve scientific or technological uncertainty that is not readily deducible by a competent professional working in the field.

This applies across many sectors, including:

• Software development
• Engineering
• Construction
• Manufacturing
• Agriculture
• MedTech

The difference between a compliant R&D claim and a non-compliant R&D claim lies in understanding the meaning of R&D for tax purposes and ensuring that your project meets the relevant criteria.

Myth 2: You need to have a successful project in order to qualify for R&D

Success is not required in order to qualify for R&D. HMRC’s focus is more on the attempt to resolve scientific or technological uncertainties, rather than whether the project achieves a successful outcome. Where a project fails commercially or technically, it may still qualify for R&D tax credits provided the company can evidence:

• The intended scientific or technological advancement
• The challenges & uncertainties faced during the project
• The R&D activities undertaken to resolve these uncertainties

This approach is reflected in HMRC’s guidance and reinforced during HMRC enquiries, where the process followed is often more important than the final outcome. 

Myth 3: R&D tax credits are available for projects carried out anywhere in the world

Many businesses assume R&D tax credits can be claimed for projects carried out anywhere in the world. That is no longer the case. HMRC now restricts R&D tax relief for certain activities undertaken overseas.

For businesses with accounting periods beginning on or after 1 April 2024, most expenditure relating to subcontracted R&D and externally provided workers is only eligible where the R&D activity takes place in the UK. Costs linked to overseas activity are generally excluded from a claim.

There are limited exceptions to the overseas restriction. Any exception must be clearly justified. HMRC expects claims to show where the R&D activities took place and to explain why any qualifying overseas expenditure meets the conditions for an exception.

Myth 4: Your company must be making a profit to claim R&D relief

R&D tax relief is available to both profitable and loss-making companies. HMRC allows claims regardless of profitability, although the way R&D tax relief is delivered will differ depending on a company’s tax position.

From April 2024, most companies claim under the merged R&D scheme, which applies taxable credit mechanics broadly aligned with the former RDEC scheme. Loss-making companies that meet the R&D intensity threshold may qualify for Enhanced R&D Intensive Support (ERIS); this scheme offers a higher rate of R&D support. This addresses a common misconception around ERIS. The scheme is not limited to profitable businesses. It is specifically designed to provide enhanced support to loss-making, R&D-intensive businesses that meet the qualifying criteria.

Myth 5: The R&D claiming process is too complicated to follow through

The beginning of the R&D claiming process can appear complex, especially where companies are unfamiliar with HMRC’s documentation and compliance requirements.

In practice, the process is structured, but it requires careful interpretation of the rules and clear technical and financial evidence.

At Alexander Clifford, we support businesses in identifying qualifying R&D activity, evidencing technical uncertainty and preparing R&D claims that align with HMRC guidance. This helps reduce the risk of errors and limits the likelihood of challenges occurring during HMRC’s compliance checks.

Key summary

R&D tax relief was introduced by HMRC to support compliant scientific and technological innovation for UK businesses. Despite this, these guidelines are often misunderstood. Many R&D tax relief myths continue to circulate, particularly where guidance is outdated or is no longer compliant with HMRC’s updated approach to claiming. 

Since recent guideline changes, it has become more important than ever to provide clarity, accuracy, and evidence.

A compliant research and development tax credit claim depends on a genuine understanding of what qualifies as R&D for tax purposes. It is vital to avoid any lack of technical clarity or supporting records as this will more likely result in a delay, a reduction, or selection for an HMRC enquiry.

At Alexander Clifford, we work with UK businesses to help them understand and identify specific HMRC guidelines and prepare R&D claims that are technically defensible and clearly presented. The focus is on documentation and compliance, rather than maximising figures without professional support. 

Our team of experts are always a phone call away if you have any questions or concerns when it comes to claiming R&D for tax purposes. If you’d like to discuss a current R&D project or review an existing R&D tax credit claim, you can browse our other articles or contact our team to arrange an initial discussion.