What is an R&D tax credit claim?

An R&D claim involves submitting an application to HMRC to receive R&D tax relief in return for efforts focused on industry innovations and advancements. R&D tax credits are a government incentive that were introduced to support UK businesses dedicated to improving their current products or services through iterative experimentation. 

R&D tax credits are designed to encourage businesses in the UK to invest in innovation and attempt resolving genuine uncertainty within a scientific or technological field. 

For accounting periods beginning on or after 1 April 2024, the separate SME and RDEC regimes have been replaced by a single, unified R&D Merged Scheme offering a 20% taxable credit. 

However, highly innovative, loss-making small businesses with an R&D intensity of 30% or more instead claim under the Enhanced R&D Intensive Support (ERIS) scheme for a higher rate of relief.

HMRC’s definition of qualifying R&D focuses on the work undertaken rather than the commercial outcome. A successful product is not required. Instead, the company must demonstrate that the uncertainty could not readily be resolved by a competent professional working in the relevant field.

Eligible expenditure may include staffing costs, employer National Insurance contributions, pension contributions, software, consumable items, data and cloud computing costs, along with certain payments to external workers or subcontractors where the legislation allows.

Under the current rules, expenditure on overseas subcontractors or Externally Provided Workers (EPWs) is heavily restricted and generally disallowed unless narrow, specific exceptions apply. Furthermore, only the primary decision-maker who intends and initiates the R&D project can claim subcontracted costs, preventing subcontractors from claiming for work directed by their clients.

The exact costs that qualify depend on the nature of the claim and the rules that apply to the accounting period.

The UK’s R&D tax relief regime has evolved in recent years to improve compliance and reduce error and fraud. Most companies are now required to submit an Additional Information Form before making a claim, and some first-time claimants must also notify HMRC of their intention to claim in advance. These requirements are designed to ensure claims are supported by clear technical and financial evidence.

Preparing a robust claim involves more than calculating qualifying expenditure. Companies should clearly explain the scientific or technological uncertainties encountered, the work carried out to overcome them, and how the qualifying activities contributed towards the attempted advance. Providing accurate technical narratives alongside detailed cost calculations helps demonstrate that the claim meets HMRC’s requirements and can support a smoother compliance process.