Research and Development (R&D) tax relief for small and medium-sized enterprises
How to claim Corporation Tax relief for costs on R&D if you're a small and medium-sized enterprise (SME).
Research and Development (R&D) tax relief supports companies that work on innovative projects in science and technology.
You cannot claim if the advance is in:
- the arts
- humanities
- social sciences, including economics
Small and medium-sized enterprise (SME) R&D tax relief
This tax relief allows your company to:
- deduct an extra 86% of your qualifying expenditure from your trading profit for tax purposes, as well as the normal 100% deduction, to make a total of 186% deduction
- claim a payable tax credit if the company has claimed relief and made a loss
The payable tax credit is worth up to:
- 10% of the surrenderable loss
- 14.5% of the surrenderable loss if the company meets the intensity condition
Unless you’re exempt from the PAYE (Pay As You Earn) cap, your tax credit claim cannot be over the cap.
To claim the relief, you need to be a SME and show how your project meets the definition of R&D for tax purposes.
If you’re making your first claim, you may be able to apply for advance assurance.
To meet the intensity condition
Your relevant R&D expenditure (plus that of the relevant R&D expenditure of any connected companies), must be at least 40% of your total relevant expenditure (plus that of any connected companies).
Only trading companies chargeable to UK Corporation Tax (or companies eligible to claim relief for pre-trading expenditure under section 1045 of Corporation Tax Act 2009) can have relevant R&D expenditure.
For accounting periods beginning on or after 1 April 2024
The SME scheme will be replaced by enhanced R&D intensive support. This is only available to loss-making R&D intensive SMEs.
Companies that can claim
You can claim tax relief if you’re a SME with:
- less than 500 staff
- a turnover of under 100 million euros or a balance sheet total under 86 million euros
If your company has external investors, this can affect your SME status. You will need to include the figures of linked and partner enterprises when you work out if you’re a SME.
The staff, turnover and balance sheets of any linked or partner enterprises should be included in your total.
Linked enterprises
Your company is linked to another one if:
- it holds over 50% of the voting rights in another enterprise
- another enterprise holds over 50% of the voting rights in your company
- it has other rights which allow it to control another enterprise
- another company has other rights which allow it to control your company
- your company and another enterprise are both controlled by another party
Partner enterprises
You have a partner enterprise if:
- another company holds 25% or more of your voting rights or capital
- you hold 25% or more of another company’s voting rights or capital
You will need to include a proportion of the staff, turnover and balance sheets of partner companies. This should be based on the percentage of voting rights and capital that connects the 2 companies.
For example, if you own 30% of another company you should include 30% of its staff, turnover and balance sheets when calculating if you’re a SME.
When you cannot claim
You cannot claim the tax relief for a project if:
- you’ve received State aid totalling more than 7.5 million euros for the project
- you’ve received any other State aid (excluding the SME tax relief) for the project
- it’s for work subcontracted to you
- it’s subsidised in some other way, for example by a grant, but you may be able to claim on the part that is not subsidised
Find out if you can claim R&D expenditure credit instead.
Check when costs qualify
Before you make a claim for R&D costs to get tax relief or a payable tax credit, check that the costs:
- are part of a specific project to make an advance in science or technology, it cannot be an advance in the arts, humanities or social sciences, including economics
- meet the definition of R&D
- qualify for tax relief, listed in the section ‘Which costs qualify’
Which costs qualify
You can claim the tax relief on some of the costs you incur from the start to the end of the project.
R&D starts when work begins to resolve the scientific or technological uncertainty and ends when that uncertainty is resolved, or the work to resolve it stops.
The following information will tell you which costs you can and cannot claim for.
You can also find further guidance in CIRD82000 of the Corporate Intangibles Research and Development Manual.
Consumable items
You can claim for the relevant proportion of consumable items used up in the R&D, this includes:
- fuel
- materials
- power
- water
You cannot claim the costs if you sell or transfer ownership of the consumable items used up in the R&D.
Clinical trials volunteers
For R&D projects in the pharmaceutical industry, you can claim for payments made to the subjects of clinical trials.
Data licence and cloud computing
For accounting periods beginning on or after 1 April 2023, qualifying expenditure is extended to include data licence costs and cloud computing costs.
A data licence is a licence to access and use a collection of digital data.
Cloud computing includes:
- data storage
- hardware facilities
- operating systems
- software platforms
You can claim for most data and cloud computing costs spent on R&D.
Externally provided worker costs
Workers supplied by a staff provider such as an employment agency, are classed as externally provided workers.
You can:
- claim 100% of the relevant payments, if your company and the staff provider are connected
- claim 65% of the relevant payments made to a staff provider, which is not connected to your company, if they supply externally provided workers for the project
Staff costs
For staff working directly on the R&D project, you can claim for the following costs, as long as they relate to R&D:
- bonuses
- salaries
- wages
- pension fund contributions
- secondary Class 1 National Insurance contributions paid by the company
In specific circumstances you may also claim for an element of administrative or support staff who work to directly support a project, for example:
- human resources used to recruit a specific person to work on the project
- specialist cleaning staff
These are known as qualifying indirect activities.
The following are some examples of staff costs that you cannot claim for:
- redundancy payments
- staff costs for clerical or maintenance work that would have been done anyway, like managing payroll
Software
You can claim for software licence fees for R&D and a reasonable share of the costs for software partly used in your R&D activities.
Subcontractor costs
You can claim:
- 65% of the relevant R&D costs made to a subcontractor
- the relevant R&D costs if the subcontractor is connected to your company
Examples of costs that do not qualify
The following are other examples of costs that you cannot claim for:
- capital expenditure
- the cost of land
- the cost of patents and trademarks
- rent or rates
Calculate the enhanced expenditure
Follow these steps to calculate the enhanced expenditure.
-
Work out the costs that are directly attributable to R&D.
-
Reduce any relevant subcontractor or external staff provider payments to 65% of the original cost.
-
Add all costs together.
-
Multiply the figure by 86%.
-
Add this to the original R&D expenditure figure.
If you make a trading loss, you can choose to surrender this and claim a payable tax credit.
You can find more information on how to convert tax relief into payable tax credits in CIRD90500 of the Corporate Intangibles Research and Development Manual.
Before you claim
You must follow these steps before you claim the tax relief, or your claim may not be valid.
-
For accounting periods beginning or after 1 April 2023, check if you need to submit a claim notification form to notify HMRC in advance of your claim. Find out what you need to send to tell HMRC that you’re planning to claim R&D tax relief.
-
From 8 August 2023 you must submit an additional information form to support your claim. Find out how to send the information and what to send when you submit detailed information before you claim R&D tax relief.
How to claim
Claim or make an amendment using the Company Tax Return and:
- complete the single iXBRL computations file
- put an ‘X’ in box 656 to tell us that you’ve submitted the claim notification form
- put an ‘X’ in box 657 to tell us that you’ve submitted the additional information form
- complete the supplementary form CT600L, if you’re claiming a payable tax credit or R&D expenditure credit
Guidance is available to help you complete your Company Tax Return.
If your tax relief claim covers more than 12 months, submit a separate claim for each accounting period.
You can make a claim for tax relief up to 2 years after the end of the accounting period it relates to.
Check the ‘Before you claim’ section to make sure that your tax relief claim will be valid.
Updates to this page
Last updated 8 May 2024 + show all updates
-
Added translation
-
Information about how to meet the Research and Development (R&D) intensity condition for loss-making SMEs has been added.
-
The 'Staff costs' section has been updated to include the treatment of bonuses and clarify that in some specific circumstances, you can claim for an element of administrative or support staff if they relate to an R&D project. The 'Subcontractor costs' section, second bullet point has been updated to tell you that you can claim for the relevant R&D costs if the subcontractor is connected to your company. The information on when you must submit an additional information form has been updated from '1 August 2023' to '8 August 2023', and the text regarding voluntary submission of the additional information form before the mandatory date has been removed in step 2 of section 'Before you claim'.
-
Added translation
-
More information has been added about small and medium-sized company R&D tax relief, the companies that can claim, when you cannot claim and which costs qualify for tax relief. How to calculate the enhanced expenditure and how to claim have been updated. A new section has been added to tell you what you need to do before you claim the tax relief for accounting periods beginning on or after 1 April 2023 and for claims from 1 August 2023.
-
Information about how to claim relief, including what you need to complete before using the online service to send details to support your claim has been updated in the 'How to claim R&D relief' and 'How to support your claim' section. The 'Making of the R&D easier for small companies guide' has now been removed from the 'Overview' section.
-
The email address to send details for more than 10 research and development projects has been updated.
-
Information about how you can now use the online service to support your Research and Development tax relief claim has been added.
-
The date to make amended claims for reimbursed expenses has been changed from 31 January 2018 to 30 April 2018.
-
Guidance updated to advise companies if they receive more than €500,000 a year in state aid, certain details will be published on the European Commission website.
-
First published.