A group of employees discuss a research and development project in a factory setting

What is classed as R&D for tax purposes? (Guide for businesses)

Innovation is vital for businesses to grow and succeed in today’s rapidly developing global market. R&D is a crucial part of innovation, and the UK government has put aside £39.8m for 2022-2025 to be able to provide R&D tax credits to companies that engage in qualifying R&D activities, promoting economic growth, enhancing the UK’s reputation and keeping innovation here in the UK.

To help companies understand what qualifies as R&D for tax purposes, the UK government’s Department for Business, Innovation and Skills has published a series of guidelines on the meaning of research and development for tax purposes. Here, we’ll break those guidelines down so you can quickly understand if your company is likely to be eligible for R&D tax credits.

What types of R&D qualify for tax credits?

The guidelines define R&D for tax purposes as “systematic, investigative, or experimental activities carried out in the field of science or technology.” This includes activities to develop new products, services, or processes and improve existing ones.

To qualify for R&D tax credits, an activity must:

  • Aim to achieve an advance in science or technology
  • Involve scientific or technological uncertainties that cannot be easily resolved by a competent professional in the field
  • Involve a process of systematic experimentation or investigation

Is my business eligible for R&D tax relief?

To claim tax relief for R&D activities, a business must:

  • Be a UK tax-paying company, subject to corporation tax
  • Be carrying out qualifying R&D activities
  • Own the intellectual property resulting from the R&D activities
  • Have spent money on the R&D in question

What types of research and development tax relief are available?

The Research and Development Tax Relief scheme offers two types of relief – a reduction in a company’s taxable profits, or a cash payment. The scheme is available to companies of all sizes and in all sectors, if they meet the eligibility criteria.

To summarise, the UK government’s Department for Business, Innovation and Skills defines R&D activities as any systematic, investigative, or experimental activities aimed at achieving an advance in science or technology, or that address scientific or technological uncertainties that cannot be easily resolved by a competent professional in the field.

The UK government’s Research and Development Tax Relief initiative is designed to encourage businesses to invest in R&D and innovate to stay competitive in today’s fast-paced world – and, despite common misconceptions, it’s not limited to engineering firms. Companies may have undertaken eligible R&D when they developed an innovative software program, designed a new product, or improved an existing product or process across their workflows. It’s also important to note that R&D does not have to be successful to qualify for tax relief.

What to do if you think your company is eligible for R&D tax relief…

Has your company undertaken a research and development project you think might make you eligible for tax relief? Many businesses, of all sizes, have to guess their way through the applications for R&D tax refunds. And most accountants and R&D firms need more in-house expertise to help companies claim the most complete credit.

Grantica’s HMRC-compliant assessment framework helps businesses identify R&D activities suitable for tax relief and assist them through innovation funding applications with HMRC. Don’t hesitate to contact us for an initial assessment.

Our chartered engineers and tax advisors will tell you in 30 minutes if you have a potential qualifying R&D claim, and help you get the most out of it. Our unique Grantica R&D Framework™ (GRDF) lets us handle everything for you at every stage of your application, offering professional expertise, complete transparency and confidentiality throughout the process.

Get in touch to find out if you have an eligible R&D claim

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