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R&D Tax Relief FAQs

Rewarding innovation

Research and Development Tax Relief – or Tax Credit – legislation is ever-changing.

Here, we answer some of the most asked questions about this government incentive and but some of the better known myths.

Frequently Asked Questions

Research and Development (R&D) tax credits are an incentive to reward companies engaged in innovation.

A UK tax relief, R&D tax credits can provide valuable funding for any company spending money on developing new products and processes or improving existing ones.

This relief can give your business the opportunity to claim back a proportion of your R&D expenditure as tax credits, which can reduce your tax bill or increase taxable losses.

No matter the sector, if you’re spending money on research and development, then you could be eligible to claim R&D tax credits.

To count as R&D expenditure under tax relief guidelines, your project must have sought to advance science or technology. HMRC say:

Projects that count as R&D

The work that qualifies for R&D relief must be part of a specific project to make an advance in science or technology. It cannot be an advance within a social science, like economics, or a theoretical field, such as pure maths.

The project must relate to your company’s trade, either an existing one, or one that you intend to start up based on the results of the R&D.

To get R&D relief you need to explain how a project:

  • looked for an advance in science and technology
  • had to overcome uncertainty
  • tried to overcome this uncertainty
  • could not be easily worked out by a professional in the field

Your project may research or develop a new process, product or service or improve on an existing one.

It’s our job to work with you to gather the evidence that will satisfy HMRC’s criteria, so that you don’t have to worry about interpreting the terminology.

Once the HMRC has approved your claim, payments are made to MPA who receive them on your behalf and make payments to you, minus our fee, via your preferred means.

Dependent on your company size, financial situation, and preference you can receive your tax relief in the form of cash credit, rebate on tax already paid, a reduction in your Corporation Tax liability, or a combination of these.

Corporation Tax 600 form is submitted as part of your company tax return. Limited companies use it to calculate the Corporation Tax they owe. You also use it to claim Research and Development Expenditure Credit (RDEC - for large companies) or Research and Development SME Payable Tax Credit for small and medium-sized enterprises.

HMRC state if you're claiming on...

  • 1 to 3 projects, you must include details of all projects
  • 4 or more projects, you must include detailed descriptions of at least 3 projects (up to a maximum of 10), which between them cover 50% or more of your total qualifying R&D costs

We'll discuss eligible projects and claim size with you during the discovery phase to determine, together, where R&D has taken place, what should be included in your claim and how many projects you can evidence.

Although you don't need to submit these with your claim, we would recommend keeping a record just in case HMRC requests them. If items are purchased personally and not via the company i.e. via a company credit card, you could include these in your claim.

HMRC does routinely raise compliance checks against claims for a variety of reasons, including during spot checks, so it isn't something to be necessarily worried about. 

Any claim submitted through MPA is covered by our compliance service, which includes a stringent quality assurance process involving claim checks from both our R&D and tax specialists prior to submission. If a compliance check (enquiry) were to be raised on your claim, our R&D experts would meet with you to compose a response and we'd manage your case to conclusion.

Read more about compliance checks here.

We take the time and stress out of enquiries for our clients, which is something that sets MPA apart from other R&D consultancies.

If a company is already claiming, activity up to two years after the accounting year end date to which the claim relates can be claimed without prior notification to HMRC.

From April 2023, however, new claimants will need to notify HMRC that they will be making a claim within 6 months of the accounting year-end - limiting that two-year claim period.

Companies new to claiming R&D tax relief will therefore need to be more proactive in identifying projects as they arise, and not part of their post-year CT return.

We have accountancy services in-house, but we also regularly work with other accountants on compiling an R&D claim for their clients.

The accounting treatment of R&D tax credits is not straightforward; nine out of every ten claims that we review when taking on a new client have been calculated incorrectly for one reason or another, so we strongly advice you and your accountant work with an R&D specialist if you can.

Moreover, making a claim is not just a numbers exercise. Our analysts can identify when things like system integration protocols, reducing data search times or building an OLAP database represent an advance or innovation; knowledge that you wouldn’t expect your accountant to have.

Nine out of every ten claims that we review when taking on a new client have been calculated incorrectly for one reason or another. We regularly see costs included that shouldn't be, projects being claimed on that don't represent genuine R&D, and claims incorrectly described and evidence against HMRC guidelines.

We've put together a series of guides and tests for you to use when looking for an R&D advisor which you can find linked below.


Reporting a loss should NOT prevent a business from making an R&D tax credit claim.

A loss-making SME can recoup up to 33.35% of its R&D expenditure via the scheme – a significant boost for any company. This is, in fact, a higher proportion of R&D expenditure than a profit-making business could claim for!

A successful claim can release a cash injection into your business after your accounting year end, allowing you to continue with the investment that’s vital to facilitate growth.

That’s not a problem. Research and development can inevitably result in some project failures. The eligibility for the scheme is not dependent on the outcome of the project, only on whether the spend qualifies.

You’ll receive a letter saying that HMRC are conducing a compliance check of your R&D tax relief claim; this is the start of an enquiry.

It’ll probably be headed ‘Check of the Company tax return for the period ended…’, and will include a list if questions that you need to answer.

You should act on this immediately. You typically have 30 days from the date on the letter to respond but it could take some time to gather the answer to the questions, and, if you’ve claimed through an advisor, you need to take their turnaround times into account too.

The first step after this is to return your answers, along with supporting evidence if needed; these will be reviewed, and either more questions will come, or your answers will suffice to close the enquiry. It's also useful to make contact with the inspector on your case to discuss timelines and build a relationship.

If further questioning takes place, this can be done via a meeting (face to face or online, restrictions dependent), where a tax inspector and occasionally a technical colleague will interrogate your claim and ask you to respond.

If you don't agree with the outcome you can appeal the decision and ask for another chance to state your case, or you can accept the conclusion.

The longer you take to answer questions, the less helpful your responses are, and what decision you decide to accept will all impact how long the process will take.

Read more about compliance checks here.

Your business may qualify if that meet the following conditions;

  1. You are a limited company in the UK subject to Corporation Tax
  2. Have carried out qualifying research and development activities
  3. Have spent money on R&D projects

Find out more about eligibility here.

Whether you are developing products in a lab or refining a manufacturing process as long as you are making an advance in science or technology, you could qualify for R&D tax credits. It could be a project to develop a new process, product or service.

HMRC have provided guidance on what types of activity needs to be present in the project for it to qualify for the relief:

  • an aim to advance science and technology
  • uncertainties that have been overcome
  • uncertainties that you have tried to overcome (not all projects need to be successful to qualify)
  • the project should not be something that can easily be solved or understood by a professional the same field

You can claim certain costs on the project from the date you start working on it until you develop or discover the advance, or the project is stopped.

Employee costs

For staff working directly on the R&D project, you can claim a proportion of their:

  • salaries
  • wages
  • Class 1 National Insurance contributions
  • pension fund contributions

You can claim for administrative or support staff who work to directly support a project. For example, human resources used to recruit a specific person to work on the project. You cannot claim for clerical or maintenance work that would have been done anyway, like managing payroll.

You can claim 65% of the relevant payments made to an external agency if they provide staff for the project.

Subcontractor costs

You can claim 65% of the relevant costs of using a subcontractor for your R&D activities.


You can claim for software licence fees bought for R&D and a reasonable share of the costs for software partly used in your R&D activities.

Consumable items

You can claim for the relevant proportion of consumable items used up in the R&D. This includes:

  • materials
  • utilities

Clinical trials volunteers

For R&D projects in the pharmaceutical industry, you can claim for payments made to volunteers involved in clinical tests.

Costs that cannot be claimed

You cannot claim for:

  • the production and distribution of goods and services
  • capital expenditure
  • the cost of land
  • the cost of patents and trademarks
  • rent or rates

The amount of money that you can get back in your claim depends on the scheme that you qualify for. There are two schemes, the main differences being the size of your business, the amount of Corporation Tax that you are paying, and whether you are profit or loss-making. Irrespective of your business there is benefit in making a R&D claim as you can receive a return between 14.5% and 33% for SMEs.

If your business employs fewer than 500 employees and has an annual turnover not exceeding €100 (£86) million or a balance sheet not exceeding €86 (£74) million, you would qualify for the SME R&D tax credit scheme. With this scheme businesses have the opportunity to offset up to 33% of your R&D costs against your Corporation Tax and in some cases, you can receive this as a cash credit from HMRC.

There are a few factors that can affect your claim as an SME, if you are receiving a grant, subsidy, receiving state aid or using subcontractors to support part of your R&D project then you may need to make a claim via the RDEC scheme, or both. Also if your staff headcount is lower than 500, but you exceed both the turnover and gross asset thresholds, you will be classed as a large company for R&D relief and be assigned to the RDEC scheme.

It can be a bit confusing understanding where your business may fit in. If you are in this position speak to our representatives to discuss your specific business needs on live chat or other ways - contact us.

Previously known as the Large Company scheme, the RDEC scheme is for companies with 500 or more employees, revenues over 100 million euros, and a balance sheet of more than 86 million euros. The level of tax relief can be worth around 12% of the money spent on R&D, which can mean you can earn 10p for every £1 spent on qualifying R&D. As with the SME scheme the credit can be off set against your tax liability or payable in cash.

The overarching guideance here is that costs for furloughed employees cannot be included in a claim, because those staff weren't in the business undertaking R&D during their furloughed period.

This, however, is not quite that straightforward and expert advice should be sought here - especially if you furloughed but did not claim a coronavirus job retention scheme (CJRS) grant.

Yes. In August 2022 HMRC clarified this as follows:

Time spent by staff on furlough should not be excluded from the Article 5 Staff headcount rules in Commission Recommendation 2003/361/EC which apply to the SME scheme by virtue of s1119 CTA 2009.

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