Research and development tax relief for small and medium sized companies

Helping you invest in improving your company's products, processes and services

Research & development (R&D) tax relief can help fund the technological advances you need to keep your company competitive, by reducing your tax bill or providing you with cash. Over 4,500 small and medium-sized (SME) companies are claiming more than £250m each year in R&D tax relief from HM Revenue & Customs (HMRC). This guidance will help you decide if you could qualify, and tell you what to do next if you think you do.

What is R&D tax relief?

R&D tax relief, often called R&D tax credits, reduces your taxable profits and can create or increase taxable losses. This can mean you pay less corporation tax or can lead to cash back from the Government via payable R&D tax credits.

Do we qualify?

The flowchart will help you assess whether you have expenditure that might qualify for R&D tax relief. To be entitled to either R&D tax relief or payable credits you must be doing work that falls within a special definition of R&D. If you have been doing R&D you should be able to answer these questions:

• Are you trying to do something that involves you having to develop scientific or technological knowledge that isn't commonly available? (For example, creating or appreciably improving a product, process or service can sometimes require you to develop this sort of know-how - but being innovative in a commercial sense or new to you isn't enough on its own.)
• What are the scientific or technological challenges you've had to overcome as part of this work? (These have to be uncertainties that competent professionals can't readily resolve, and where solutions aren't common knowledge.)

Simply buying new technology and using it isn't R&D, but adapting it or developing it for your own purposes might be if it involves scientific or technological advances.

You need to identify what parts of any project are R&D and the amount of money you spent on eligible costs in order to claim R&D tax relief. The special definition of R&D for tax purposes is set out in DTI guidelines and full details of the R&D tax relief and R&D payable tax credits are available in HMRC's Corporate Intangibles and Research and Development manual.

What is the relief worth?

This will depend on your precise circumstances. The relief can reduce your corporation tax bill by up to 15% of your eligible R&D costs. Some SME companies not in profit can surrender their R&D tax losses for cash (in the form of a payable credit) of up to 24p per £1 of actual expenditure within specified categories.

If you do R&D you may also be able to claim 100% capital allowances for your capital R&D expenditure. Details are available in HMRC's Capital Allowances manual.

I think we're eligible - what should I do?

Read this guide which will give more information on whether you can claim, then show you what to claim, how to claim, and some pitfalls to avoid.