Frequently Asked Questions
What Is R&D Tax Relief?
R&D Tax Relief is a UK government incentive designed to reward companies investing in innovation.
The scheme allows eligible businesses to:
- Reduce their Corporation Tax liability
- Claim a cash repayment where losses arise
- Recover a proportion of qualifying R&D expenditure
The relief is intended to encourage businesses to invest in advancing science or technology within their industry.
What Does HMRC Look for in Submitted R&D Claims?
HMRC expects companies to provide clear, robust evidence that qualifying Research & Development activities have taken place and that claims have been prepared correctly.
Key areas HMRC focuses on include:
- 1. Involvement of Competent Professionals
HMRC expects technical assessments to be made by “competent professionals”. These are individuals with the relevant expertise and direct involvement in the R&D activities undertaken. These individuals may be internal employees or external specialists.
- 2. Understanding of R&D Tax Legislation
The individuals involved in preparing the claim should understand HMRC’s R&D guidelines and be capable of distinguishing between eligible and non-eligible activities.
- 3. Clear Technical Narrative
The Additional Information Form (AIF) should clearly explain for individual projects:
- Th scientific or technological uncertainties faced
- Why these uncertainties could not easily be resolved using publicly available knowledge
- The work undertaken to attempt to overcome those challenges v
- 4. Accuracy of Financial Calculations
HMRC expects claims to include only qualifying expenditure and to demonstrate that costs have been calculated accurately and are fully supportable.
Robust documentation and a technically sound narrative are essential in reducing enquiry risk and improving claim quality.
Is R&D Tax Relief Only Available for New Product Development?
No. R&D Tax Relief is not restricted to entirely new products or innovations.
More information can be found here:
Can Small Businesses Claim R&D Tax Relief?
Yes. Many SMEs are eligible to claim.
Start-ups and growing businesses are often among the biggest beneficiaries of the scheme because innovation frequently occurs during periods of rapid growth and product development.
Even companies that are:
- Pre-revenue
- Loss-making
- Early-stage
- Venture-backed
- Developing internal systems
may still qualify.
What Is an SME for R&D Tax Purposes?
For R&D Tax Relief purposes, a company is generally considered an SME if it has:
- Fewer than 500 employees AND
- Either:
- Annual turnover below €100 million; or
- Gross assets (balance sheet total) below €86 million
Importantly, these thresholds are assessed at group level and may require consideration of:
- Partner enterprises (25%–50% ownership)
- Linked enterprises (over 50% ownership or control)
This can significantly affect eligibility, particularly for venture-backed or group companies.
What Is an R&D Intensive Company?
An R&D intensive company is an SME whose qualifying R&D expenditure represents a significant proportion of its total expenditure.
The threshold is:
- 40% for accounting periods beginning on or after 1 April 2024
- 30% for certain earlier periods
R&D intensity is calculated as:
Qualifying R&D Expenditure ÷ Total Company Expenditure
When calculating the ratio:
- Connected companies may need to be aggregated
- Certain tax adjustments apply to the expenditure figures
The R&D intensive rules were introduced to provide enhanced support to highly innovative businesses investing heavily in R&D.
How Much Benefit Can an R&D Intensive Company Receive?
Eligible R&D intensive SMEs may qualify for an enhanced payable tax credit rate of 14.5%, compared to the standard rate available to non-intensive companies.
This can provide significantly improved cashflow support for loss-making innovation-focused businesses.
Can Directors’ Salaries Be Included in an R&D Claim?
Yes. Directors actively involved in qualifying R&D activities may include the relevant proportion of staffing costs relating to R&D.
Dividends however are non-qualifying costs.
Can Overseas R&D Activities Be Claimed?
In limited circumstances.
For accounting periods beginning on or after 1 April 2024, overseas subcontracted R&D and externally provided workers are generally excluded unless:
- The conditions necessary for the R&D are not present in the UK
- Legal or regulatory requirements require the work overseas
- Geographic, environmental or population-specific factors make overseas activity unavoidable
HMRC applies these exemptions narrowly.
Can Grant-Funded Expenditure Be Claimed?
Yes.
For accounting periods beginning on or after 1 April 2024, companies can generally claim R&D tax relief on subsidised or grant-funded expenditure under the merged R&D scheme.
Is There a Cap on Payable R&D Credits?
Yes.
The payable credit is generally capped at:
- £20,000 plus
- 300% of the company’s PAYE and NIC liabilities for the period
However, companies may be exempt from the cap where:
- Employees are actively involved in creating or managing intellectual property (IP); and
- Less than 15% of qualifying R&D expenditure relates to connected-party subcontractors or externally provided workers (EPWs)
Careful analysis is often required to determine whether the exemption applies.
Can I Claim for Capitalised R&D Expenditure?
Potentially, yes.
While R&D Tax Relief primarily applies to revenue expenditure, certain costs capitalised in the accounts may still qualify if they represent underlying revenue expenditure for tax purposes.
Additionally, capital expenditure on assets used for R&D activities may qualify under the Research & Development Allowances (RDA) scheme, which can provide 100% capital allowances.
Determining whether expenditure is capital or revenue in nature can be technically complex.
Can I Claim for Failed Projects?
Absolutely. A failed project can often be a strong indicator of qualifying R&D activity.
HMRC recognises that genuine R&D frequently involves uncertainty, experimentation, and technical risk. Where a project fails because the technological objectives could not be achieved despite systematic attempts to resolve uncertainties, qualifying relief may still be available.
Success is not required for a valid R&D claim.
Does Software Development Qualify for R&D Tax Relief?
Yes — many software projects qualify. Software development may be eligible where the work involves overcoming scientific or technological uncertainties rather than routine coding or standard implementation.
What Information Is Required in the Additional Information Form (AIF)?
The Additional Information Form (AIF) is now a mandatory part of most R&D claims and requires both technical and financial information.
HMRC requires details of qualifying projects as follows:
If claiming for 1–3 projects:
You must describe all projects covering 100% of the qualifying expenditure.
If claiming for 4–10 projects:
You must describe:
- At least 3 projects; and
- Projects representing at least 50% of total qualifying expenditure
If claiming for 11+ projects:
You must describe:
- Projects representing at least 50% of qualifying expenditure; and
- The 10 projects with the highest qualifying expenditure where appropriate
The AIF also requires:
- Technical descriptions
- Details of scientific or technological uncertainties
- Cost breakdowns for each project
- Contact details for responsible individuals and advisers
What Happens If HMRC Opens an R&D Enquiry?
HMRC may open a compliance check where it requires further information about:
- Technical eligibility
- Cost calculations
- Competent professionals
- Supporting documentation
- Claim methodology
An enquiry does not necessarily mean the claim is incorrect. However, responding effectively requires strong technical and tax support, together with well-maintained project documentation.
Poorly prepared or overly aggressive claims can increase enquiry risk.
Can Companies Claim R&D Tax Relief Every Year?
Yes. Companies can submit claims annually provided they continue undertaking qualifying R&D activities.
Many businesses claim repeatedly as innovation evolves across multiple projects and accounting periods.
Can I Make Retrospective R&D Claims?
Yes. Companies can generally amend a corporation tax return to include an R&D claim within two years from the end of the relevant accounting period.
However, for accounting periods beginning on or after 1 April 2023, many companies must also submit a claim notification form before making a claim.
Are R&D Tax Claims Risky?
A properly prepared claim based on genuine qualifying activities should not be viewed as high risk.
However, HMRC scrutiny has increased significantly in recent years due to concerns over poor-quality or speculative submissions.
Businesses should ensure claims are:
- Technically robust
- Evidence-based
- Properly documented
- Prepared by experienced professionals
Aggressive or poorly supported claims can lead to enquiries, penalties or repayment demands.
Why Use a Specialist R&D Adviser?
R&D tax legislation is highly technical and HMRC scrutiny has increased significantly in recent years.
A specialist adviser can help:
- Identify qualifying activities correctly
- Prepare robust technical narratives
- Ensure accurate financial calculations
- Reduce enquiry risk
- Maximise legitimate relief available
- Navigate changing legislation and HMRC guidance
At itax Advisors, we combine technical, tax, and sector expertise to help businesses prepare compliant and defensible R&D claims.
How Can We Assess Whether We Qualify?
An initial R&D assessment typically reviews:
- The company’s projects and objectives
- Technical uncertainties encountered
- Development activities undertaken
- Financial expenditure incurred
- Existing documentation and evidence
A specialist review can help determine eligibility and identify potential qualifying expenditure.