What changed in April 2024?
From 1 April 2024, the previous SME R&D scheme and the Research and Development Expenditure Credit (RDEC) scheme merged into a single scheme. The merged scheme pays a 20% credit on qualifying R&D expenditure. A separate enhanced scheme remains for R&D-intensive SMEs, those spending at least 30% of their total costs on R&D.
What qualifies as R&D for tax purposes?
HMRC uses a broad definition of R&D based on guidelines from the Department for Science, Innovation and Technology. Qualifying R&D must seek to achieve an advance in science or technology and involve overcoming scientific or technological uncertainty. This includes software development, product development, and process innovation, not just laboratory research.
What costs can I include?
Qualifying costs include staff salaries, employer NI and pension contributions for employees directly working on R&D, 65% of payments to subcontractors, software used in R&D, materials consumed in the R&D process, utilities, and cloud computing costs from April 2023 onwards. Costs must be revenue expenditure because capital costs do not qualify.
How do I make a claim?
R&D tax credit claims are made through your company tax return (CT600) submitted to HMRC. You must include a technical narrative describing the qualifying R&D activities. Claims can be made up to two years after the end of the accounting period. HMRC has increased scrutiny of R&D claims significantly since 2022, so ensure your claim is well documented.