Research and Development Incentive

How Business Can Reap The Rewards Of Innovation

In 2000, a UK tax legislation was introduced in order to encourage businesses to increase investment in innovative activities. This UK tax legislation is the R&D tax relief that offers significant benefits for business advancing science and technology. This will help organisations to significantly reduce their corporation tax bill or generate tax credit repayments if they have had a loss for the year.

The government established this incentive scheme in order for UK to be in line with other countries that offer similar rewards for innovation and as well as to boost a vital part of the economy. Nonetheless, only around 10% of eligible businesses can claim for R&D tax relief whilst the others fail to apply for the full amount they are entitled.

It is evident that businesses lack understanding about what qualifies for R&D tax relief and this prevents organisation from receiving the credit that they deserve.


In order to qualify for R&D Tax Credits, a business’ R&D activities must meet with detailed criteria set out on the HMRC website. In summary, a company can claim this form of tax relief if its project ‘seeks to achieve an advance in overall knowledge or capability in a field of science or technology through the resolution of scientific or technological uncertainty – and not simply an advance in its own state of knowledge or capability’.

Generally, in the minds of many, R&D is synonymous with the notion of scientists in ‘white coat’ in the likes of those in the pharmaceutical industry. However, R&D does not only apply to ‘white coat’ scientific research, it is also known for ‘brown coat’ research that seeks to create or improve processes, products or services, or advance technical knowledge, within range of industries. This includes development of new software for use in-house or new architectural practices.

Which Scheme To Apply For:

  • Small or Medium-sized Enterprise (SME) Scheme

If you have a small business with no more than 500 employees, up to £100m turnover or a balance sheet of less than £86m, you must apply for the SME scheme. This allows companies to claim 230% of their qualifying R&D costs.

This means that for every £100 of qualifying costs, a business can reduce its corporation tax by £130 on top of the £100 spent. Loss-making companies can also surrender their losses in return for a repayable tax credit.

  • Research and Development Expenditure Credit (RDEC) scheme

If you do not meet the above mentioned thresholds, you must apply for the RDEC scheme. This scheme offers a credit amount of 11% of the company’s qualifying expenditure. Companies that don’t have corporation tax liability will benefit from this scheme either through a cash payment or a reduction of tax or other duties due.

SMEs can also claim under the RDEC scheme if undertaking subcontracted or subsidised research on behalf of larger organisation.

Making A Successful Claim:

The key to making a successful R&D claim is to convince HMRC that the business both understands its definition of what activities and costs qualify, and that its R&D project meets these requirements fully.

Businesses which fail to take a proactive approach to ensuring that applications have the necessary accompanying material may come up against obstacles


If you think you are entitled to R&D Tax Credit and want to make a successful claim, our short video will give you more information about how we can help you.


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