What HMRC treats as research and development
The word research makes people think of laboratories, but the test is wider than that and also stricter. Your company must be trying to achieve an advance in science or technology. At the start, a competent professional in the field must not have been able to say easily how to get there. That gap is called technical uncertainty, and the claim is built around it.
BRE, the building science organisation, is based at Garston in Watford. Across Hertfordshire there are software houses, engineering firms and companies that supply the studios at Leavesden. Some of their projects qualify and some do not. A new app built with standard tools, however hard the deadline, usually falls outside. Work in the arts, social sciences and most changes to business processes is excluded too.
So the first question we ask is not how much was spent but what the team did not know how to do. If nobody can describe the technical problem in a sentence or two, R&D tax credits are unlikely to be the right fit for that project.
R&D tax credits under the current rules
For accounting periods starting on or after 1/4/2024, most companies claim under the merged R&D scheme. It replaced the old split between the small company scheme and the expenditure credit used by larger companies. There is also enhanced support for small and medium sized companies that are loss making and spend a high share of their costs on R&D.
The relief can lower your corporation tax bill or, for a loss making company, may be paid as a credit. What it is worth depends on your costs, your tax position and the rates for that period. We work that out from your own records rather than quoting a figure in advance.
People still use the phrase R&D tax credits for all of this, even though the formal names have changed over the years. What matters is that the claim is made under the right rules for each accounting period. The rules depend on when each accounting period started, so an older period that is still open for a claim may fall under the previous schemes.
What is included
- An honest eligibility review of each project
- Claim notification where it is required
- The additional information form
- Cost analysis linked to each project
- Technical project descriptions written with your team
- Including the claim in your CT600
- Support if HMRC asks questions about the claim
Costs that can go into a claim
Only costs linked to qualifying work count, and only the share of time actually spent on it. Payroll costs are usually the largest part. Salary paid to directors and employees for time on the project can be included, along with employer National Insurance and pension contributions. Dividends are not a staff cost, so a director paid mostly in dividends has less to claim.
- Staff costs for people directly working on the project
- Part of the cost of subcontractors and agency workers
- Materials used up in the work
- Software, data and cloud computing used for the project
Deadlines and forms that decide whether a claim counts
Some companies must send HMRC a claim notification before they can claim at all. It applies to first time claimants and to companies whose last claim was more than 3 years before the end of the notification window. It has to be sent within 6 months of the end of the period of account. Miss it and the claim is invalid, however good the project.
Every claim also needs an additional information form, sent before the company tax return that includes the claim. The claim itself goes in the CT600, normally within 2 years of the end of the accounting period.
What does not qualify
Rent, general overheads and the cost of producing the finished product are excluded. Work carried out overseas is restricted, so a developer abroad may not count even if they work on the same project as your UK team.
Routine testing, cosmetic changes and adapting a known solution to a new customer are also unlikely to count. We would rather tell you early that a project falls short than build a claim that HMRC rejects later, with the relief to repay and interest on top.
Preparing for HMRC questions
HMRC now checks a large number of R&D claims, partly because of weak and inflated ones in the past. For R&D tax credits, the best defence is evidence made at the time. Tickets, commit history, test results, design notes and a record of what failed are all useful. Timesheets help show how staff time was split.
We speak to whoever led the technical work, write the project descriptions in plain language with them, link every cost to a project and keep the working papers. We work with companies in Watford, Hemel Hempstead and Borehamwood mainly by video and email. Fees are fixed and agreed before any work starts, after a free review of your projects. We do not take a percentage of the relief.
If an earlier claim was prepared elsewhere and HMRC has now opened an enquiry into it, we can review that claim too. Sometimes the right outcome is to defend it, and sometimes it is to correct it quickly and reduce the damage.
Who this suits
- Software and data companies solving technical problems
- Engineering and manufacturing firms developing new processes
- Technology suppliers working with film and TV studios
- Loss making startups that spend heavily on development
- Companies claiming for the first time
Common questions
Can my company in Watford claim R&D tax relief?
If it is a company that pays, or would pay, corporation tax and it carries out qualifying work, it may be able to claim. Sole traders and partnerships cannot, because the relief works through corporation tax.
What does technical uncertainty mean in practice?
It means that at the start, a competent professional could not easily say whether the result was possible or how to achieve it. If the answer could be found in a manual or by asking an expert, the work usually does not qualify.
Can I include the salary I pay myself as a director?
Yes, for the share of your time spent on qualifying work. Salary, employer National Insurance and pension contributions can count. Dividends are not a staff cost and cannot be included.
This is our first claim. What must we do first?
Check whether you need to send a claim notification. For a first claim it must reach HMRC within 6 months of the end of the period of account. Without it, the claim cannot be made.
Can we claim for a developer who works abroad?
Usually not. The rules restrict costs for work done outside the UK, with limited exceptions. We check where each person worked before including their costs.
Can a loss making startup get money back?
It may. Loss making companies can receive the relief as a payable credit rather than a lower tax bill. Companies that spend a large share of their costs on R&D may get extra support.
Will HMRC check our claim?
HMRC checks many claims, so it is sensible to assume yours might be looked at. A clear project description, costs linked to each project and records made at the time make a check much easier.