How much R&D tax credit can I claim?

The UK R&D tax credit returns between 8.6% and 27% of your qualifying R&D expenditure. This article is a step-by-step guide to estimating where your own R&D tax credit falls within that range.

How much you can claim depends on four factors:

1. Which of your business activities count as R&D
2. Which costs you associate with your R&D
3. Which R&D tax credits scheme you apply through
4. Your firm’s financial position

In this guide, we’ll run through each of these factors, with a particular focus on the financial position calculations, which we don’t cover elsewhere in our resources.

In brief, if you’re using skilled employees like engineers, scientists or skilled artisans to create or modify products, services or production processes, then those activities will likely qualify for R&D tax relief.

There are additional factors, such as whether your work contributes to an advance in science or technology, and whether you are resolving uncertainty. We cover these in more depth in our guide to eligibility.

While some of your skilled professionals’ time will be taken up with R&D, some will also likely be for more mundane business-as-usual activity. You’ll need to separate out the R&D work from their BAU work.

Over 90% of the costs we claim for are in three areas: staff costs, consumables and subcontractors.

Consumables are the physical materials, hardware and resources used up by the R&D. The most common examples are fuel, power, water and chemicals.

Staff are those employees engaged in the R&D while being on your payroll, whereas subcontractors will typically charge by invoice, and aren’t enrolled on your payroll.

For a more complete breakdown of the costs, you can claim, consult our guide to qualifying costs.

Currently, there are two R&D tax credit schemes: the Research and Development Expenditure Credit (RDEC) and Small-Medium Enterprise (SME) schemes.

The RDEC scheme returns 20% gross and 15% net of your qualifying R&D expenditure. The SME scheme returns up to 27%, and the credit is not subject to corporation tax. The main reason businesses need to claim through the RDEC scheme is their size.

R&D-intensive SMEs have access to the highest %, which is 27%. An R&D-intensive SME is currently a company with qualifying R&D expenditure that makes up at least 40% of its total expenditure. However, from 1 April 2024, this will reduce to 30%.

From 1st April 2024, the SME and RDEC schemes are expected to merge into a single scheme, predominantly aligning with the RDEC scheme.

The company size test

If your business has fewer than 500 staff, and a turnover of under €100m or a balance sheet total under €86m, then you can likely claim through the SME scheme. If your company exceeds those limits, then you should claim using the RDEC scheme.

Note that the limits are in euros because the HMRC rules were adapted from European-wide rules.

Other RDEC applicants

If your business received a grant, is conducting R&D as a subcontractor, or is part-owned by a larger company, then you may need to apply through the RDEC scheme. More details of these conditions can be found in our guide to scheme eligibility.

If you claim through the SME scheme, then the amount you receive back is affected by your firm’s financial position.

If you’re breaking even, then you will receive the minimum amount available through the SME scheme: 8.6% of your R&D expenditure.

If you’re profit-making, you can receive up to 21.5% credit back from your R&D expenditure. If you’re loss-making, you can receive up to 18.6%, unless you are a loss-making R&D-intensive SME, in which case you can receive up to 27%.

For all SME claims, HMRC enhances your R&D expenditure up to 86% of its value. So if your business spent £100k on R&D, then the enhanced R&D expenditure would total £86k.

When you break even, your enhanced R&D expenditure has a rate of relief of 10% applied. So break-even companies, therefore, receive 8.6% of their R&D expenditure.

As a loss-making company, your R&D credit is calculated from the combination of your enhanced R&D expenditure and your trading loss, with the same 10% rate applied.

Your total credit is then capped at 18.6% of your R&D expenditure.

As a loss-making R&D-intensive SME company, your R&D credit is calculated from the combination of your enhanced R&D expenditure and your trading loss, with a higher 14.5% rate applied.

Your total credit is then capped at 26.97% of your R&D expenditure.