R&D tax relief: could your business qualify?

R&D tax relief rewards companies for solving technical problems, and many businesses that qualify never claim, assuming it’s only for people in white coats. It isn’t.

What actually counts as R&D

For tax purposes, R&D is work that seeks an advance in science or technology by overcoming scientific or technological uncertainty, where the solution wasn’t readily available or obvious to a competent professional in the field. The key test isn’t whether the result is new to the world in a marketing sense; it’s whether you had to resolve genuine technical uncertainty to get there.

The “competent professional” test

A useful way to think about it: would an experienced professional in your field have known how to do this off the shelf? If the answer is “no, we had to experiment, iterate and solve problems that weren’t obvious,” you may well have qualifying activity. Routine work, or simply applying existing techniques, generally doesn’t qualify.

Everyday examples

• Developing or significantly improving software where the approach wasn’t clear at the outset.
• Integrating systems in novel ways, or making incompatible technologies work together.
• Improving a manufacturing process, product or material to overcome a technical limitation.
• Developing new recipes or processes in food production that required real experimentation.

It spans far more sectors than people expect, engineering, software, manufacturing, construction, food and beyond.

What costs can you claim?

Qualifying costs typically include a proportion of staff costs for those involved in the R&D, payments to certain subcontractors and externally provided workers, consumable items used up in the process, software, and certain data and cloud computing costs. Getting the cost categories and apportionments right is a big part of a robust claim.

What’s changed

The previous SME and RDEC schemes have been brought together into a single merged R&D scheme, with additional support available for R&D intensive loss making SMEs. The rules and rates have moved, so the way claims are calculated and presented has changed, and getting it right matters more than ever.

HMRC is looking harder

After a period of abuse by some “claims factories,” HMRC has significantly increased its scrutiny, with more enquiries and a mandatory additional information form supporting each claim. A well evidenced, honest claim is genuinely valuable; a vague or inflated one is now a real risk. Good record keeping, capturing the uncertainties you faced and the work you did, is your best protection.

Common mistakes

Claiming for routine work, weak technical narratives, over claiming costs, and treating R&D relief as a box ticking exercise rather than a properly evidenced claim. The detail is where claims succeed or fail.

How we help

We assess honestly whether you genuinely qualify, identify the right activities and costs, and build a robust, well documented claim that stands up to scrutiny, so you get what you’re entitled to without the risk.

This article is general information, not personal advice, and tax rules change over time. For guidance on your own circumstances, get in touch.

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