Research and Development (R&D) tax credits are a government incentive intended to promote R&D in the UK.

£1.8 billion of support has been claimed so far for 2016-17, up from £350 million in 2010. This supports the government’s aim of seeing UK spending on R&D increase from 1.69% of GDP in 2017 to reach 2.4% by 2027.

What is R&D?

The credits are designed to encourage companies to invest in R&D. In return, this is proposed to increase innovation and wealth creation in the economy. Companies can reduce their tax bill or claim payable cash credits. The scheme allows UK businesses to conduct R&D at a lower risk. The financial incentive can be the difference between a project being profitable, or even viable in the first place. It also reduces the risk of projects that are likely to fail or be unachievable to their full extent.

Man coding at a desk, showing how R&D tax credits can be claimed in any industry.
3 people sat in a board room at Queen Lane's Consultants.
Man welding in a factory.

R&D for the purpose of tax takes places when a project seeks to achieve an advance in science of technology. A qualifying company will seek this through the resolution of scientific or technological uncertainties.

Introduced in 2000, the Research and Development (R&D) Tax Credit scheme is designed to encourage small and medium enterprises (SMEs) to invest in R&D. From April 2015, SMEs have been able to claim 230% on their qualifying R&D costs. 

Queen’s Lanes Consultants

It is estimated that the £3.5 billion given out via the scheme in 2016-17 has generated up to
£24.9 billion in R&D expenditure.

There are various principles which need to be respected.

Eligible R&D must be:

  • Seeking to achieve an advance in science or tech.
  • Subject to scientific or technological uncertainty.
  • Conducted in a systematic and thorough fashion.

Eligible costs include staffing costs, consumable costs, software, subcontractors and research contributions.

A company is an SME for R&D tax relief purposes if their staff count is below 500 and either the turnover is less than €100 million or a balance sheet totalling less than €86 million.

Men on construction project.
Man using angle grinder in studio.