Research & Development Tax Credits


A tax advantage is given to both small and medium-sized enterprises and large companies carrying out qualifying activities through the availability of Research and Development (R&D) tax relief and credits, which form part of the Capital Allowances legislation. Acting as a government incentive R&D tax relief encourages companies to invest in R&D activities by claiming enhanced tax relief on qualifying costs. Many companies will invest in R&D because change and innovation will be key to success as the economy reshapes and progresses. This can significantly reduce financial pressure and therefore also reduce burden. A lot of the work that businesses do to grow their companies can in fact qualify for tax credits. The profit created from these can then aid technological advances allows a company to be competitive through reducing tax bills or even receiving HMRC cash rebates.


This tax legislation allows companies to get tax relief for qualifying expenditure. Companies are allowed the alternative of cash payment if their losses are surrendered to HMRC if the company is in a loss situation.  The credits allow businesses to have an additional deduction in the process of calculating its taxable profits.

Case Study:

A recent claim involved the following summary figures:

CLAIM SUMMARY: “In accordance with relevant legislation under Part 13 CTA 2009, the company is claiming relief for the following amounts of qualifying expenditure:

£157,062.72 qualifying R&D expenditure

The Additional Deduction was 130% providing a FURTHER £ 204,181.53 of deductible costs.

Therefore the tax value of the claim, using the 19% corporation tax rate at the time, was £38,794.

Costs that are eligible:

R&D tax credits can be claimed on:

  • The Software used to conduct R&D
  • Substances used to carry out R&D
  • The power, fuel and water that is required to carry out R&D
  • The payments to a staff provided to the business who are involved in carrying out R&D.

How do you know if you qualify for Research & Development Tax Credits?

  • Is an existing product or process being modified by your company?
  • Is your company currently attempting to accomplish something that comes with a degree of uncertainty?
  • Does your company want to develop a new product?

If any of these apply to you then you have a chance of qualifying for Research & Development Tax Credits. Research & Development Tax Credits covers projects that consist of overcoming uncertainties difficult problems.

Research & Development Capital Allowances (RDA)

Capital Expenditure

You can quality for R&D capital allowances if you are involved in R&D and then spend money on capital assets.

What counts as qualifying expenditure?

Qualifying expenditure examples:

  • laboratories
  • research facilities
  • offices
  • research equipment
  • information technology
  • cars

Only the building itself, and not the land, qualifies for RDA if capital expenditure is incurred.

What you get out of it:

  • They can give 100% tax relief on items that usually have no capital allowances available (except under the new SBA which only allows for 2% per annum).
  • The amount that can be claimed has no upper limit.

How to confirm revenue and capital:

  • A review will take place to ensure that the items qualify as “qualifying expenditure”.

How claiming works:

  • It can be claimed on the current tax return or by changing a previous one. Though this is under the conditions of the usual time limits of submitting an amended tax return.


  • It is only available to those engaged in a “trade” (which is most companies likely to apply for this relief).
  • If the purpose of the building changes then you cannot claim allowances linked to that property.

HMRC‘s normal definition applies: ‘A company must be undertaking a project to seek an advance in science or technology through the resolution of scientific or technological uncertainties. The advance being sought must constitute an advance in the overall knowledge or capability in a field of science or technology, not a company’s own state of knowledge or capability alone.’



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