-
Blogs
-
archive
by Abbas Gulamhusein
R&D tax relief is one of the most underutilised reliefs available to innovative UK businesses. It allows you to claim an enhanced deduction for research and development expenditure, which effectively reduces your corporation tax bill. For some companies it's worth tens of thousands of pounds. The issue is that the rules are technical, HMRC has significantly increased its scrutiny of claims, and many businesses either don't realise they might qualify or assume the rules don't apply to them.
What counts as qualifying R&D
The definition is broader than you might think. The activity must seek to achieve an advance in science or technology by resolving scientific or technological uncertainty. It doesn't have to be ground-breaking. Developing a new manufacturing process that your industry hasn't used before qualifies. Writing custom software to solve a problem you haven't seen a ready-made solution for qualifies. Finding a new technical solution to a problem that your clients have qualifies.
The key question is whether the work involved resolving genuine uncertainty. When your team sat down to do the work, did they know how to solve the technical problem? Or did they have to experiment, research, test different approaches, and figure it out as they went along? That uncertainty is what HMRC is looking for.
What doesn't qualify is routine testing, standard software upgrades, market research, cosmetic improvements, or projects in arts, social science, or economics. Customising a standard software platform for a client without writing new code doesn't qualify. Improving the design of an existing product without changing the underlying technology probably doesn't qualify.
How the relief works
From April 2024, HMRC merged the previous R&D schemes into a single scheme. For most companies, the relief is 20% above the line. For every £100 of qualifying R&D expenditure, you get a £20 credit against your corporation tax bill.
So if your company spends £500,000 on qualifying R&D, you get a £100,000 credit. That credit reduces your corporation tax payable. For loss-making companies and SMEs in certain circumstances, the scheme can provide a cash payment instead of a tax credit.
What costs qualify
Staff costs are the most common qualifying cost. If your employees spend time on qualifying R&D, their salary costs, National Insurance contributions, and pension contributions are deductible. You need to track this properly. You can't claim 100% of a software team's salaries just because your software team does R&D. You need evidence of which people worked on qualifying projects and how much time they spent.
Subcontractor costs qualify subject to limits. Materials and consumables used in R&D qualify. Software, cloud computing services used in development, and testing materials qualify. Capital spending on equipment doesn't qualify. Costs of acquiring existing software or IP don't qualify.
The documentation imperative
This is critical. HMRC has significantly ramped up scrutiny of R&D claims after discovering widespread abuse. Now, when you submit a claim, you need detailed technical narratives describing what the uncertainty was, how you addressed it, and what you learned. You need supporting documentation: project records, time tracking evidence, development process records.
Companies that submitted poorly evidenced claims are finding themselves subject to HMRC enquiry. The enquiry is intensive and expensive. If HMRC decides your claim was inflated, you'll be asked to repay the relief plus penalties. The cost of getting it wrong is material.
Who qualifies
The businesses that qualify are far broader than most people assume. Software development companies qualify. Engineering firms developing new processes or products qualify. Manufacturers working on new production methods qualify. Food production companies developing new formulations qualify. Even professional services firms developing proprietary tools or processes can qualify if there's genuine technical uncertainty.
If your business does anything technically innovative, it's worth having a conversation about whether R&D relief applies. The amounts can be substantial. A software company spending £500,000 on development could claim £100,000 in tax relief. A manufacturer spending £300,000 on developing a new production process could claim £60,000.
Next steps
Don't guess whether you qualify. Don't inflate your numbers. Get proper advice. If your business involves developing new processes, writing custom software, solving technical problems, or creating new products, work through the rules properly. Get documentation in place. Understand what qualifies and what doesn't.
If you think R&D relief might apply to your business and you want to understand whether you qualify and how much you might be able to claim, get in touch with us at Saymur. We can discuss your business activities, help you work through what counts, and make sure your claim is properly evidenced and defensible.