R&D tax credit eligibility checklist

Two tests decide everything. Both come from the government’s guidelines on the meaning of research and development for tax purposes, and HMRC applies them to the project, not to the company.

An advance in the field, not in your business

The project has to seek an advance in overall knowledge or capability in a field of science or technology. Picking up a framework your team has not used before does not count, even though it is new to you. A publishing company lost at tribunal on exactly that point: it had digitised its own back catalogue using technology that was new to the business, and the tribunal found nothing that moved the wider field forward. The question HMRC asks is whether a knowledgeable outsider in your field would already know how to do it.

Uncertainty a competent professional cannot readily resolve

There must be a point where a skilled person in that field genuinely does not know whether the thing can be done, or how to do it, and cannot work it out from published material or common practice. That person is your competent professional. They need real, current experience in the field, they need to be identifiable, and they need to be able to describe the uncertainty in their own words. If nobody in the business can do that, there is no claim worth making.

What sits outside

• Advances in the arts, humanities, social sciences and economics
• Applying existing technology in a routine way, including standard integrations and theme work
• Cosmetic or commercial improvements with no technical uncertainty
• Work that stops being R&D once the uncertainty is resolved, even if the project continues

Work down these gates in order. A no at any one of them usually ends the conversation, and knowing that early saves you money.

Using the R&D tax credit eligibility checklist

1. Company type. You are a UK limited company within the charge to corporation tax. Sole traders, partnerships and LLPs cannot claim.
2. Going concern. The company is a going concern on the latest published accounts. A payable credit is not available otherwise.
3. A defined project. You can point to a project with a start, an aim and an end, rather than general development work that runs forever.
4. A technological aim. The project set out to make an advance in science or technology that others in the field had not already made public.
5. Real uncertainty. At the outset your people did not know whether or how it could be achieved, and could not find out from available knowledge.
6. A competent professional. Someone with current, relevant technical experience led or did the work and can explain the uncertainty and the approach taken.
7. Costs you can trace. Qualifying costs can be tied to named people and real time on the project, from payroll and the ledger.
8. Timing. The accounting period ended less than two years ago, and either you have filed the claim notification form in time or you are exempt from it.

For funded technology companies the first six gates are usually clear and the last two are where claims fall over. For e-commerce and construction companies it is the other way round: the costs exist and the technical story has never been written down.

Only costs attributable to the qualifying R&D itself count, and only within the period you are claiming for.

Costs that qualify

• Staff costs for people working directly on the R&D: gross salary, employer National Insurance, employer pension contributions and some reimbursed expenses, apportioned to the time actually spent
• Externally provided workers supplied through a staff provider, restricted to 65 per cent of the payment where the parties are unconnected
• Subcontracted R&D, again restricted to 65 per cent where unconnected
• Consumable items used up in the R&D, including materials, water, fuel and power
• Software licences, data licences and cloud computing costs used for the R&D
• Payments to clinical trial volunteers

Costs that do not

• Rent, rates and general overheads
• Capital spending on equipment or premises, which goes through capital allowances instead
• Patent filing and legal costs
• Marketing, sales, distribution and production once the uncertainty has been resolved

The subcontracting and overseas rules

Under the merged scheme the company that decided to do the R&D and carries the risk is the one that claims, which changes who claims when you develop something for a customer. Separately, subcontracted R&D and externally provided worker costs now have to relate to work done in the UK, unless conditions for the work exist only overseas, for geographical, environmental, legal or regulatory reasons. Cost and the availability of workers are specifically not good enough reasons. If your development team sits abroad, check this before you budget on a claim.

For accounting periods beginning on or after 1 April 2024 there are two routes, and which one you use is decided by the numbers rather than by preference.

The merged scheme

Most claimants now use the merged R&D expenditure credit. It gives a credit worth 20 per cent of qualifying expenditure, shown above the line in the accounts and taxable as income. It then settles against your corporation tax liability, with any remainder working through a set order of steps before any cash is paid. One useful change: under the merged scheme, expenditure met by a grant or other subsidy is no longer stripped out of the claim in the way it was before, so grant funded projects are worth a second look.

Enhanced R&D intensive support

Loss making small and medium companies whose qualifying R&D spend is at least 30 per cent of total relevant expenditure can use enhanced R&D intensive support instead. That gives an additional 86 per cent deduction on qualifying costs and a payable credit at 14.5 per cent of the surrenderable loss. There is a grace year, so a company that qualifies in one period and dips below the intensity threshold in the next can stay in the scheme for that following period.

Payable amounts under both routes are capped by reference to the company’s PAYE and National Insurance liabilities, with a fixed allowance on top. For an early stage company with contractors and few employees, that cap can bite, which is another reason to model the claim before you rely on the cash.

These are the ones I see cost companies the whole claim, and neither can be rescued afterwards.

Claim notification

For accounting periods beginning on or after 1 April 2023, many companies have to tell HMRC in advance that a claim is coming. The claim notification form has to reach HMRC within six months of the end of the period of account. You are exempt if you have made a valid R&D claim in one of the three previous calendar years, subject to conditions on how that earlier claim was made. First time claimants, and anyone who has had a gap, should assume the form is needed. Miss it and the claim for that period is gone, however good the project was.

The additional information form

Since August 2023 every claim needs an additional information form submitted on or before the day the company tax return goes in. It asks for a project by project description of the advance and the uncertainty, a breakdown of qualifying costs, the name and role of the competent professional, details of any agent involved and a named senior officer of the company. Submit the return without it and HMRC removes the claim from the return.

The two-year window

A claim has to be made within two years of the end of the accounting period it relates to, by amending the company tax return. The figures then flow through the CT600 and, where a payable credit arises, the CT600L.

R&D relief rarely sits on its own. If you are building something technical inside a limited company, two other reliefs usually belong in the same conversation.

Patent box

Where a company holds or exclusively licenses a qualifying patent, patent box can bring the corporation tax rate on profits attributable to that intellectual property down from 25 per cent to 10 per cent. It takes an election, a sensible method for streaming income and costs, and patience with the patent office, so it works best when the application and the R&D claim are planned together rather than discovered years later.

SEIS and EIS

Founders raising from angels often ask whether claiming R&D affects their SEIS or EIS advance assurance. It does not, and the two work side by side. What does matter is the order: advance assurance before the raise, R&D claimed as each accounting period closes. Our SEIS eligibility checklist covers the window and conditions for that side.

Keeping the evidence as you go

The companies that find claims straightforward are the ones writing a short project note at the time: what we were trying to do, why we did not know if it would work, what we tried, who worked on it and for how long. Ten minutes a month from the competent professional is worth more than a week of reconstruction eighteen months later. If you want the detail on how we handle this, see R&D tax credits and patent box.