UK R&D Tax Credits FAQ

How long does it take to get R&D tax credits?

Most R&D tax credit claims are processed by HMRC in around 4 to 8 weeks. HMRC aims to handle 85% of claims within 40 days of submission, and in 2023–24 they processed 92% within that timeframe. Once your claim is approved, payment (if due) is usually issued shortly thereafter – allow a few extra days for the funds to reach your bank account via BACS transfer​. However, timing can vary: complex claims or peak filing periods (e.g. March year-ends) may take a bit longer​. Note: If HMRC opens an enquiry into your claim, the review can take 6–12 months or more to resolve​, which will delay any payment until the enquiry is closed.

READ: Why Choose R&D Tax Credit Specialists Over DIY Claims

Are R&D tax credits refundable?

R&D tax credits is often used as the catch-all name for the R&D tax relief scheme. Within the scheme, you can get different types of tax relief. The relief works by reducing your taxable profit/loss. So, if you are profit-making, you will get tax refund (or reduction if you have not paid your tax bill yet). If you are loss-making, or the R&D claim takes you into a loss position, you have the option to surrender losses for a tax credit. This means you can get cash from HMRC even if you haven’t paid any corporation tax. You can also choose to carry those losses forward to offset profits and save you tax in future years.

While not every claim leads to a cheque in the post, if your relief exceeds your tax liability, HMRC will refund the difference as cash. This makes the incentive very valuable for startups and other R&D-intensive companies that are not yet profit-making.

Can an LLP claim R&D tax credits?

No – a Limited Liability Partnership (LLP) itself cannot directly claim R&D tax credits. This is because R&D tax relief is a form of corporation tax relief, and LLPs do not pay Corporation Tax (LLPs are tax-transparent)​.

In practice, only companies liable for UK Corporation Tax are eligible to claim R&D credits. However, if an LLP is undertaking R&D and has corporate members - for example, a corporate partner in the LLP - those member companies might be able to claim R&D tax relief on their share of the LLP’s R&D expenditure via their own corporation tax returns​. 

In summary, an LLP itself usually cannot claim, but an associated company could potentially benefit from R&D costs incurred through the partnership structure.

How are R&D tax credits paid?

If you receive a tax credit or tax refund, HMRC will pay the funds to you by BACs or by cheque. Sometimes the relief can be offset against outstanding tax liabilities so you should keep an eye on your online tax portal for any updates. 

How far back can you claim R&D tax credits?

You can typically claim R&D tax credits for up to two years after the end of the accounting period in which the R&D costs were incurred​. 

In other words, the deadline to include an R&D claim is the same as the amendment window for your company tax return (CT600). For example, if your financial year ended on 31 March 2023, you have until 31 March 2025 to submit (or amend) that year’s corporation tax return to claim R&D relief. After that point, the opportunity to claim for that period is closed. It’s important to plan before that deadline – if you miss the two-year window, you generally cannot retrospectively claim the R&D credit for that period. Always check your year-end dates and ensure any eligible R&D spend is claimed within two years. 

Note: there is no ability to claim beyond this window, so timely review of R&D activities each year is essential.

How is R&D tax credit calculated?

Calculation of the R&D tax relief depends on which scheme you’re using (SME or RDEC) and your profit position:

SME Scheme

Small and medium-sized companies can deduct an extra enhanced percentage of their qualifying R&D costs from their taxable profits. For expenditures from 1 April 2023, the enhancement is 86% (down from 130% previously).

In effect, you get a total deduction of 186% of your R&D spend against profits. If the company is profit-making, this additional deduction reduces your corporation tax (saving you tax at your normal rate – e.g. a 21.5% net benefit on the R&D spend if taxed at 25%​). 

If the company is loss-making, you have the option to surrender the R&D part of the loss for a payable credit. The payable credit rate for SMEs is 10% of the surrenderable loss (for periods after April 2023), which equates to roughly 10 pence per £1 of R&D spend being refunded in cash (about an 18.6% return on the actual R&D cost)​. 

Example: £100k of qualifying R&D yields an additional £86k deduction; if surrendered, up to £186k of losses can get a 10% credit = £18.6k cash. For R&D-intensive SMEs (where at least 40% of total business spend is on R&D), a higher credit rate of 14.5% is available​ – meaning such loss-makers can reclaim 14.5p per £1 of R&D spend. Effectively a 26–27% refund of their costs). 

Before April 2023, the SME credit rate was 14.5% for all loss-makers, giving ~33% back on R&D costs​, but the rates changed in 2023 to curb abuse.

RDEC Scheme

Large companies and certain SME projects not eligible under SME rules use the Research & Development Expenditure Credit (RDEC). The RDEC is calculated as a taxable credit equal to a percentage of your qualifying R&D expenditure. From 1 April 2023, the RDEC rate is 20% of qualifying R&D costs (it was 13% before)​. 

This credit is treated as taxable income for the company, but you then use it to discharge your tax liability. After accounting for Corporation Tax on the credit, the net benefit is roughly 15% of the R&D spend for a company paying the main CT rate (25%). 

If the credit exceeds the company’s tax bill, HMRC will pay out the remainder in cash - after some small adjustments such as deducting taxes due or applying any cap. Example: £100k of R&D under RDEC yields a £20k credit. That £20k is taxable - so if profits are taxed at 25%, £5k of it goes back in tax -  leaving ~£15k net benefit to the company – either as reduced tax or a refund. Essentially, the RDEC scheme provides about 10p to 15p per £1 of R&D spend back to the company net of tax​ - the exact net depends on your tax rate and situation.

So, SMEs get an enhanced deduction (currently +86%) and possibly a cash credit (10% or 14.5% of the enhanced loss), while large companies get a 20% credit (taxable) on R&D costs. Both schemes ultimately reward you with a portion of your R&D expenditure either as tax saved or cash received.

How much is R&D tax credit?

The value of an R&D tax credit depends on your company size and tax position – there isn’t one fixed amount for everyone. Broadly speaking, the benefit is a percentage of your qualifying R&D expenditure:

SMEs

An SME can recoup anywhere from around 18% up to about 33% of its R&D costs through the tax credit. Under current rates post-April 2023, a typical profitable SME gets roughly 21–25% of its R&D spend back as a tax saving (e.g. ~21.5p per £1 at the 25% tax rate)​. A loss-making SME can get up to 18.6% of the R&D cost refunded in cash under the new 10% credit rate​, or up to ~27% if they qualify as R&D-intensive - able to use the 14.5% credit). 

(Previously, all loss-making SMEs could get ~33% back under the old rates​, but this has been reduced for most claimants as of 2023–24.)

Large companies (RDEC)

The RDEC scheme provides a credit equal to 20% of R&D costs since 2023 – but because that credit is taxable, the net benefit is about 10–15% of your spend​. 

For example, a large company might effectively get ~11p per £1 (under the older 13% rate with 19% tax) or ~15p per £1 (under the 20% rate with 25% tax) of its R&D costs back after tax.

In practical terms, for every £100,000 of qualifying R&D spend, an SME might receive on the order of £18,000–£27,000 - depending on profit/loss status and intensity of R&D - whereas a large company might see a benefit of around £10,000–£15,000. The exact “R&D credit rate” varies with your circumstances – but these schemes substantially reduce the cost of R&D, often returning roughly one-quarter to one-third of the money spent on R&D to your business​.

Find out how software is helping businesses of all sizes make R&D tax credit claims quicker and easier.

Is R&D tax credit taxable income?

It depends on the scheme: Under the SME scheme, the R&D tax relief (or credit) is not treated as taxable income in your accounts​. 

Instead, it’s handled as a reduction of your corporation tax liability (below the line). So if you receive an SME cash credit or tax saving, you do not pay further corporation tax on that benefit – it’s simply a refund/reduction of tax, not income. In accounting terms, the SME credit is often shown as a credit to the tax expense or as an adjustment to retained earnings, rather than revenue.

Under the RDEC scheme - used by large companies and some grant-funded projects - the credit is taxable. The RDEC is designed as an “above-the-line” credit: you record the R&D credit as other income in your profit-and-loss account, which increases your accounting profit​. Consequently, corporation tax is applied to it just like any other profit. However, you then use the RDEC to offset your tax, so in effect you’re paying tax on the credit and keeping the remainder. The result is that an RDEC credit’s value is partially offset by tax – for example, a £100 RDEC credit at a 25% tax rate nets you £75 benefit after £25 tax.

So, SME R&D credits are non-taxable they only impact your tax bill, not your gross income​, whereas RDEC credits are taxable income - you count the credit as income and then pay tax on it, yielding a net benefit​. 

This difference is purely an accounting/tax treatment point; either way, the company ends up better off, but it’s important for accounting and forecasting to know that an RDEC will boost reported profit (and tax) whereas an SME relief will not.

R&D additional information form – what is it and when is it required?

The R&D Additional Information Form (AIF) is a new mandatory form introduced by HMRC in August 2023 as part of the R&D claim process​. It is essentially a supplementary report that companies must submit to HMRC before or at the same time as filing an R&D tax relief claim. The form requires detailed information about your R&D projects and expenditures, including a description of the scientific/technological uncertainties addressed, how you sought to overcome them, project durations, breakdown of qualifying costs, number of employees involved, etc.​

You’ll also need to provide company details (UTR, SIC code, etc.) and the contact information of a senior internal R&D responsible officer and any agent who helped prepare the claim​. Failing to submit the AIF means HMRC will reject the R&D claim – it’s a strict requirement now​. 

Compliance tip: Make sure you compile a succinct technical narrative and costing breakdown for each R&D project in advance. The form will ask for up to 10 projects and various specifics. Don’t worry - QLC will handle this all for you.

Also note that from April 2023, new claimants must ‘pre-notify’ HMRC of their intention to claim R&D relief: if your company has not claimed R&D tax credits in the last 3 years, you are required to submit a separate claim notification form within 6 months after the end of the accounting period for which you plan to claim​. If you miss that notification window, the claim may be invalid. This notification is in addition to the AIF and is another part of HMRC’s recent compliance measures. 

In summary, as of 2023, to claim R&D relief you must:

1. Notify HMRC in advance if required
2. Submit the Additional Information Form with details of the R&D, and 
3. File the CT600 claim – all correctly and on time – to have a valid claim.

READ: The Ultimate Guide to R&D Tax Credits for UK Businesses in 2025

What are the benefits of R&D tax credit?

Claiming R&D tax credits can provide a range of important benefits for your business:

1. Significant financial savings on innovation

R&D tax credits offer generous tax relief that helps offset the cost of investing in innovation. They either reduce your corporate tax or provide a cash infusion, effectively funding a portion of your R&D spend. This financial relief makes it more affordable for companies to pursue ambitious projects and fosters continuous innovation by freeing up capital for reinvestment​.

2. Boost to cash flow

Especially for startups and SMEs, a payable R&D credit can improve your cash flow. If your company is loss-making or only marginally profitable, the scheme turns your R&D efforts into a cash refund, providing a much-needed liquidity injection​. This cash can be used to fund further R&D, hire staff, buy equipment, or simply extend your runway. Even for profitable companies, the reduction in tax bill preserves cash that can be reinvested elsewhere in the business.

3. Accessible across industries and company stages

One great benefit is that R&D tax relief is broadly available – it’s not limited to specific sectors or a particular size of project. There is no minimum R&D expenditure required to claim, and the scheme applies to all industries. The key is that the work qualifies as advancing science or technology​. Moreover, you can claim even if the business is not currently paying tax. You don’t need to be profitable, as the credit can be refunded in cash​. This inclusivity means many businesses, from tech startups to manufacturers, can benefit as long as they undertake genuine R&D.

READ: Startups and R&D Tax Credits: A Step-by-Step Guide

4. Encourages growth and competitiveness

By rewarding innovation, the credit effectively lowers the risk and cost of R&D projects. This enables companies to undertake projects they might otherwise avoid. Over time, that leads to developing better products, services, or processes, helping the business stay competitive and grow faster​. Companies that leverage R&D credits can often outpace competitors by continually improving and innovating, using the tax savings to fuel a cycle of further research and development.

5. Talent attraction and investor appeal

Investing in R&D with the support of tax credits can make your company more attractive to both talent and investors. From a talent perspective, employees – especially engineers, developers and scientists – are drawn to companies doing cutting-edge work. Utilising R&D incentives to push innovation sends a signal that your business values development and growth, which can help attract and retain skilled employees who want to work on exciting projects​. 

For investors or lenders, the fact that you are recovering some R&D cost via a government-backed scheme can enhance your company’s financial profile and credibility. It effectively extends your runway (for startups) or improves ROI on projects, which investors appreciate. Overall, the R&D tax credit can be seen as a mark of a forward-thinking, innovative business – with financial gains to match.

In short, R&D tax credits not only provide cash savings but also encourage a virtuous cycle of innovation and growth. They enable companies to do more R&D, hire more staff, and remain competitive, all while easing the financial burden of development. For many businesses, this relief has been transformative, turning R&D into a more immediately rewarding investment.

What does R&D stand for?

“R&D” stands for Research and Development​. This abbreviation is used to describe innovative activities undertaken by a business to develop new knowledge, products, or processes, or to improve existing ones. In the context of business and tax, R&D essentially refers to work aimed at making an advance in science or technology through experimentation and problem-solving. R&D for tax purposes has a strict definition, outlined in the DSIT guidelines.

What does R&D tax credit mean?

The term “R&D tax credit” refers to a government incentive that rewards companies for engaging in research and development. In the UK, it means a Corporation Tax relief scheme designed to encourage businesses to invest in R&D​. In practical terms, an R&D tax credit allows a company to recover a portion of its R&D expenditure either by reducing its corporation tax bill or via a cash payment from HMRC​.

So when we say a company is claiming an ‘R&D tax credit,’ we mean the company is utilising the government’s R&D tax relief program to get tax back for qualifying R&D activities. It’s essentially money back for innovation: the scheme credits you for doing R&D by cutting your taxes or providing a refund.

What is R&D tax credit?

R&D tax credit (also known as R&D tax relief) is a UK government incentive program that allows companies undertaking qualifying research and development to claim a tax benefit. It comes in two forms – one for small and medium enterprises (the SME scheme) and one for large companies (the RDEC scheme) – but both serve the same purpose: to incentivise innovation by offsetting some of the costs through tax relief​. If a company spends money on eligible R&D projects, the R&D tax credit scheme lets them either pay less corporation tax or even receive a cash payment if the relief exceeds their tax due​.

The value of the credit depends on the scheme and the company’s financial position - as detailed in earlier answers - but it can be quite significant. In some cases worth up to roughly 25-33% of the R&D spend coming back to the company​

Basically, an R&D tax credit is the mechanism by which companies get rewarded for innovation through the tax system. It was introduced to encourage businesses to invest in R&D by reducing the effective cost of those activities.

What is R&D?

R&D is an abbreviation for research and development, which refers to activities undertaken by companies to innovate or improve their products and processes. It’s essentially the process of investigating and creating new knowledge with the aim of developing new solutions. In a business context, R&D involves projects that seek to achieve an advance in science or technology – for example, designing a new product, experimenting with new materials, building a prototype, or developing a new software algorithm. 

It’s all about problem-solving and pushing boundaries: true R&D goes beyond routine improvements and tackles uncertainties that require testing and experimentation. 

According to HMRC, to qualify as R&D for tax purposes the work must aim to make a scientific or technological advancement and resolve uncertainties that could not be easily solved by a competent professional in the field​

In simpler terms, R&D is the innovative work a company does to create new knowledge, products, or techniques, or to significantly improve existing ones​. This could range from pharmaceutical companies researching new drugs, to software firms developing advanced algorithms, to manufacturers experimenting with new production methods. The “R&D” label applies to all such innovation-driven efforts.

What is the R&D tax credit rate?

There isn’t a single universal “R&D tax credit rate” – the effective rate depends on which scheme and scenario you are using. Here’s a breakdown of the current rates as of the 2023/24 tax year - after recent changes.

SME Scheme

An SME’s R&D relief works via an enhanced deduction rather than a straightforward credit percentage. Currently, SMEs can deduct an extra 86% of qualifying R&D costs from their profits (on top of the 100% normal deduction).​

This does not directly translate to a percentage of spend refunded until you consider the tax rate: for a profit-making SME, that 86% extra deduction at (for example) a 25% tax rate yields an effective benefit of about 21.5% of the R&D spend (i.e. ~21.5p saved per £1 of R&D)​.

If the SME is loss-making, it can surrender the R&D loss for a cash credit at a rate of 10% of the loss​.

The “loss” for this purpose is 186% of the R&D cost (100% + 86%), so effectively the cash credit equals ≈18.6% of your actual R&D expenditure in this scenario​. (R&D-intensive SMEs get a higher payable credit rate: 14.5% of the surrenderable loss​, equating to ~26.97% of the R&D spend returned in cash for those companies.) 

Prior to April 2023, the SME credit rate for loss-makers was 14.5% for all, yielding about 33% of spend – so older claims or accounts straddling the date may have different rates​. But as of 2023/24, most SMEs: 86% additional deduction; 10% payable credit (14.5% if R&D-intensive).

RDEC Scheme

The RDEC (Research & Development Expenditure Credit) has a headline credit rate set by the government. The current RDEC rate is 20% of qualifying R&D expenditure​. This is the rate for expenditures incurred from 1 April 2023 onward. It was previously 13%. 

However, remember the RDEC is taxable – meaning the company will pay Corporation Tax on that credit. After tax, the net benefit of a 20% RDEC is typically between ~15% and 16% of the R&D spend - for a company paying the main 25% tax rate, the net is 15% because 25% of the credit is taxed away. Companies with lower tax rates (e.g. if profits fall under the small profits rate of 19%) see a slightly higher net (up to ~16.2%), whereas those in the marginal band (26.5% effective tax) see a bit lower net (~14.7%)​. 

So in conversation, one might say the RDEC scheme is roughly a 15% after-tax credit. The key point: RDEC rate = 20% (gross), ~15% net. (For completeness, from 1 April 2020 to 31 March 2023 the RDEC rate was 13% gross, which netted to about 10% after 19% tax​.)

Basically, the “R&D credit rate” depends on who you are: an SME gets relief roughly equal to 19–26% of their spend (depending on profit or loss, and using the new rates) while a large company gets around 10–15% of their spend. The UK government has also announced that from April 2024, the two schemes will be merged into a single scheme resembling RDEC with a credit of around 20%​ – aligning the rates for all companies. But until then, we have the differing SME and RDEC rates as outlined above.

READ: Introduction To The Merged R&D Tax Relief Scheme

When were R&D tax credits introduced?

R&D tax credits were first introduced in the UK in 2000​. The initial scheme launched in April 2000 was targeted at small and medium-sized enterprises (SMEs) under the Finance Act 2000. Two years later, in 2002, a separate R&D relief scheme for larger companies was introduced​.

That original large company scheme was a super-deduction system, which has since been replaced by the RDEC in 2013, but large companies have had R&D tax relief available since 2002. 

The policy was brought in by the UK government under Chancellor Gordon Brown, to boost innovation, as the UK at that time sought to increase R&D investment in the economy​.

Over the years the schemes have evolved – with rate changes and rule tweaks – but the R&D tax credit program in essence dates back to Finance Act 2000, making it an incentive with over two decades of history.