Tax Explained
R&D Tax Credits Explained
R&D tax credits reward UK companies for investing in innovation. From April 2024 most companies use the merged R&D scheme, which provides a 20% above-the-line credit on qualifying research and development expenditure.
Quick answer
What are the key takeaways?
From April 2024, most companies claim under the merged R&D scheme at a 20% above-the-line credit rate.
Key takeaways
From April 2024, most companies claim under the merged R&D scheme at a 20% above-the-line credit rate.
Qualifying R&D expenditure includes staff costs, subcontractor costs, consumables, software and data licences used in qualifying projects.
An additional information form must be submitted to HMRC before the Corporation Tax return is filed.
HMRC scrutiny of R&D claims has intensified significantly — claims must be accurate, well-documented and submitted by a reputable adviser.
What changed in April 2024?
Before April 2024, UK R&D relief operated under two separate schemes: the SME scheme (which provided an enhanced deduction and payable credit for loss-making SMEs) and the Research and Development Expenditure Credit (RDEC) for larger companies. From 1 April 2024, most companies merged into a single scheme that operates similarly to the old RDEC.
Under the merged scheme, companies receive a 20% above-the-line credit on qualifying R&D expenditure. This credit is recognised in profit and loss, reducing the effective cost of R&D before it is offset against Corporation Tax. Loss-making companies can claim a payable credit at a rate of 16.2% after tax.
What counts as qualifying R&D expenditure?
Qualifying expenditure includes staff costs (salary, NIC and pension contributions for employees directly engaged in R&D), subcontractor costs (at 65% for third-party subcontractors under the merged scheme), consumables, software and data licences used for the R&D project.
The R&D work itself must seek to achieve an advance in science or technology and must involve overcoming scientific or technological uncertainty. Work on social sciences, arts and management systems does not qualify. The project must be described in technical terms, not just business terms.
What is the additional information form?
Since August 2023, companies must submit an additional information form (AIF) to HMRC before or at the same time as the Corporation Tax return containing the R&D claim. The AIF requires a description of the R&D projects, the qualifying costs and the contact details of the adviser preparing the claim.
Claims submitted without an AIF or with an AIF that contains insufficient technical detail are likely to be challenged by HMRC. This requirement was introduced to combat the significant number of fraudulent and inflated R&D claims HMRC had been receiving.
How has HMRC scrutiny changed?
HMRC created a dedicated R&D compliance unit and has substantially increased the volume of enquiries into R&D claims. Claims in certain sectors (such as professional services, IT development and financial services) receive particular attention, as do first-time claimants and claims prepared by high-volume, low-quality R&D advisory firms.
The cost of a successful HMRC challenge is not just repayment of the credit — interest and penalties can apply, especially if HMRC considers the claim was carelessly or deliberately inflated. Using a qualified, experienced accountant to prepare and review the claim is essential.
Questions
What do people ask about r&d tax credits?
These answers cover the practical points clients commonly raise before asking Countify to review their own position.
Ask a different questionOnly companies subject to UK Corporation Tax can claim. The work must involve genuine scientific or technological R&D. Companies in certain sectors (such as oil extraction and subsidised projects) face additional restrictions.
R&D claims can be made by amending a Corporation Tax return within two years of the end of the relevant accounting period, subject to specific deadline rules for the AIF.
Yes, if the software development involves overcoming scientific or technological uncertainty — for example, developing a new algorithm, processing technique or novel use of technology. Routine software development does not qualify.
Yes. Countify can review your R&D projects, identify qualifying expenditure, prepare the additional information form and submit the claim as part of your Corporation Tax return.
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