R&D Tax Credits

R&D tax credits are only available to limited companies subject to Corporation Tax. Sole traders and partnerships cannot claim R&D tax credits directly. However, if you are considering incorporating your business, doing so could open up eligibility for R&D relief on qualifying expenditure. We can advise on whether incorporation makes sense for your situation.

R&D tax credits apply to projects that seek to achieve an advance in science or technology by resolving scientific or technological uncertainty. This includes developing new products, processes, or services, as well as improving existing ones. Your project must be part of a specific project and relate to your company’s trade.

Under the current merged R&D scheme, most companies can claim a tax credit worth up to 20% of qualifying R&D expenditure. Loss-making SMEs may be eligible for a higher rate. Qualifying costs include staff salaries, subcontractor costs, software, and consumables directly used in R&D activities.

Your company may qualify if it is working to resolve scientific or technological uncertainty — for example, developing new software, algorithms, systems, or processes. The work must go beyond routine development. Staff costs, subcontractor costs, software licences, and consumables used in qualifying R&D can all be included in the claim. Since April 2024, the merged R&D scheme applies to most companies.

R&D Tax Credits allow companies to claim a tax reduction or cash payment from HMRC for qualifying research and development expenditure. Since April 2024, the SME and RDEC schemes have merged into a single scheme. Most companies can claim an enhanced deduction of 186% on qualifying costs, resulting in a net benefit of approximately 16.2p for every £1 spent on R&D (or higher for loss-making companies meeting the intensity threshold).