Research and Development (R&D) tax relief for small and medium-sized enterprises

What is Research and Development (R&D) tax relief

R&D tax relief supports companies that work on innovative projects in science and technology.

You cannot claim if the advance is in:

• the arts
• humanities
• social sciences, including economics

What is small and medium-sized enterprise R&D tax relief

SME R&D tax relief allows companies to:

• deduct an extra 86% of their qualifying costs from their yearly profit, as well as the normal 100% deduction, to make a total of 186% deduction
• claim a payable tax credit if the company has claimed relief and made a loss, the payable credit is worth up to 10% of the surrenderable loss

To claim the relief, you need to be a SME and show how your project meets the standard definition of R&D.

If you’re making your first claim for tax relief as a SME, you may be able to apply for advance assurance.

Companies that can claim

You can claim tax relief if you’re a SME with:

• less than 500 staff
• a turnover of under 100 million euros or a balance sheet total under 86 million euros

If your company has external investors, this can affect your SME status. You will need to include the figures of linked and partner enterprises when you work out if you’re a SME.

The staff, turnover and balance sheets of any linked or partner enterprises should be included in your total.

Linked enterprises

Your company is linked to another one if:

• it holds over 50% of the voting rights in another enterprise
• another enterprise holds over 50% of the voting rights in your company
• it has other rights which allow it to control another enterprise
• another company has other rights which allow it to control your company
• your company and another enterprise are both controlled by another party

Partner enterprises

You have a partner enterprise if:

• another company holds over 25% of your voting rights or capital
• you hold over 25% of another company’s voting rights or capital

You will need to include a proportion of the staff, turnover and balance sheets of partner companies. This should be based on the percentage of voting rights and capital that connects the 2 companies.

For example, if you own 30% of another company you should include 30% of its staff, turnover and balance sheets when calculating if you’re a SME.

When you cannot claim

You cannot claim the tax relief for a project if:

• you’ve received State aid totalling more than 7.5 million euros for the project
• you’ve received any other State aid (excluding the SME tax relief) for the project
• it’s for work subcontracted to you
• it’s subsidised in some other way, for example by a grant, but you may be able to claim on the part that is not subsidised

Find out if you can claim R&D expenditure credit instead.

Check when costs qualify

Before you make a claim for R&D costs to get tax relief or a payable tax credit, check that the costs:

• are part of a specific project to make an advance in science or technology, it cannot be an advance in the arts, humanities or social sciences, including economics
• meet the standard definition of R&D
• qualify for tax relief, listed in the section ‘Which costs qualify’

Which costs qualify

You can claim the tax relief on some of the costs you incur from the start to the end of the project.

R&D starts when work begins to resolve the scientific or technological uncertainty and ends when that uncertainty is resolved, or the work to resolve it stops.

The following information will tell you which costs you can and cannot claim for.

Consumable items

You can claim for the relevant proportion of consumable items used up in the R&D, this includes:

• fuel
• materials
• power
• water

You cannot claim the costs if you sell or transfer ownership of the consumable items used up in the R&D.

Clinical trials volunteers

For R&D projects in the pharmaceutical industry, you can claim for payments made to volunteers involved in clinical tests.

Data licence and cloud computing

For accounting periods beginning on or after 1 April 2023, qualifying expenditure is extended to include data licence costs and cloud computing costs.

A data licence is a licence to access and use a collection of digital data.

Cloud computing includes:

• data storage
• hardware facilities
• operating systems
• software platforms

You can claim for most data and cloud computing costs spent on R&D.

Externally provided worker costs

Workers supplied by a staff provider such as an employment agency, are classed as externally provided workers.

You can:

• claim 100% of the relevant payments, if your company and the staff provider are connected
• claim 65% of the relevant payments made to a staff provider, which is not connected to your company, if they supply externally provided workers for the project

Staff costs

For staff working directly on the R&D project, you can claim for the following costs, as long as they relate to R&D:

• salaries
• wages
• pension fund contributions
• secondary Class 1 National Insurance contributions paid by the company

You can also claim for administrative or support staff who work to directly support a project, for example, human resources used to recruit a specific person to work on the project or specialist cleaning staff, these are known as qualifying indirect activities.

You cannot claim for:

• bonuses
• redundancy payments
• staff costs for clerical or maintenance work that would have been done anyway, like managing payroll

Software

You can claim for software licence fees for R&D and a reasonable share of the costs for software partly used in your R&D activities.

Subcontractor costs

You can claim:

• 65% of the relevant R&D costs made to a subcontractor
• 100% of the relevant R&D costs if the subcontractor is connected to your company

Other costs that do not qualify

You cannot claim for expenses relating to:

• the production and distribution of goods and services
• capital expenditure
• the cost of land
• the cost of patents and trademarks
• rent or rates

Read more information about qualifying costs for R&D projects in CIRD82000 of the Corporate Intangibles Research and Development Manual.

Calculate the enhanced expenditure

Follow these steps to calculate the enhanced expenditure.

1. Work out the costs that are directly attributable to R&D.

2. Reduce any relevant subcontractor or external staff provider payments to 65% of the original cost.

3. Add all costs together.

4. Multiply the figure by 86%.

5. Add this to the original R&D expenditure figure.

If you make a trading loss, you can choose to surrender this and claim a payable tax credit.

Read more information about how to convert tax relief into payable tax credits in CIRD90500 of the Corporate Intangibles Research and Development Manual.

Before you claim

You must follow these steps before you claim the tax relief, or your claim may not be valid.

1. For accounting periods beginning or after 1 April 2023, check if you need to submit a claim notification form to notify HMRC in advance of your claim. Read the guidance which tells you when you need to notify, the information you will need to provide and how to send it.

2. From 1 August 2023 you must submit an additional information form to support your claim. Read the guidance which tells you how to send the information and what you will need to provide. You can submit it before 1 August 2023 if you want to give us more information.

How to claim

Claim or make an amendment using the Company Tax Return and:

• complete the single iXBRL computations file
• put an ‘X’ in box 656 to tell us that you’ve submitted the claim notification form
• put an ‘X’ in box 657 to tell us that you’ve submitted the additional information form
• complete the supplementary form CT600L, if you’re claiming a payable tax credit or R&D expenditure credit

Guidance is available to help you complete your Company Tax Return.

If your tax relief claim covers more than 12 months, submit a separate claim for each accounting period.

You can make a claim for tax relief up to 2 years after the end of the accounting period it relates to.