R&D tax relief, eligibility, deadlines and evidence
Overview
Research and Development (R&D) tax relief can support companies carrying out qualifying scientific or technological work. Commercial innovation alone is not enough: the project must seek an advance in overall knowledge or capability in a field of science or technology by resolving scientific or technological uncertainty.
HMRC can challenge the technical basis, expenditure and procedural validity of a claim. Companies should establish eligibility, check notification deadlines and retain evidence before submitting their Company Tax Return.
The merged R&D expenditure credit scheme and enhanced R&D intensive support (ERIS) apply to accounting periods beginning on or after 1st April 2024. Earlier accounting periods remain subject to the earlier regimes.
Detailed Content
Who can claim?
R&D Corporation Tax relief is available to qualifying companies chargeable to UK Corporation Tax, not directly to sole traders or ordinary partnerships. Directors remain responsible for the company's return, even where a specialist adviser prepares the claim.
Software development, technical staff or a trading loss do not establish eligibility on their own. Each project and its costs must satisfy the relevant rules.
Which scheme applies?
For accounting periods beginning on or after 1st April 2024:
Merged R&D expenditure credit: generally a taxable credit of 20% of qualifying expenditure, not a tax-free refund of 20%. The final benefit and payment depend on Corporation Tax and the statutory credit calculation.
ERIS: available to qualifying loss-making R&D-intensive SMEs. It provides an additional 86% deduction and a payable credit of up to 14.5% of the surrenderable loss, subject to the rules.
ERIS normally requires relevant R&D expenditure to be at least 30% of total relevant expenditure, including the required connected-company calculations. A conditional one-year grace period can apply. The SME definition for R&D purposes is not simply the Companies House small-company classification.
Both schemes have PAYE-cap rules and exemptions. Special ERIS provisions apply to companies with a registered office in Northern Ireland. A company cannot claim both schemes on the same expenditure.
Claim notification, check the period of account
For accounting periods beginning on or after 1st April 2023, claim notification may be required where a company is claiming for the first time or has not made a qualifying recent claim.
The notification window starts on the first day of the period of account covered by the financial statements and ends six months after that period of account ends. This is important where accounts cover more than 12 months and include more than one Corporation Tax accounting period.
For example, a period of account ending on 31st December 2026 normally has a notification deadline of 30th June 2027.
Previous claims must be checked against HMRC's three-year test and exceptions. Do not assume that having claimed once removes the requirement permanently. HMRC's guidance also sets out circumstances in which a previously claiming company can satisfy the requirement by submitting the claim within the notification window.
Missing a required notification deadline can invalidate the claim. Notification is separate from the Additional Information Form and the tax-return claim deadline.
Additional Information Form, submit it first
An Additional Information Form (AIF) is mandatory for R&D claims submitted on or after 8th August 2023. It must be submitted before the Company Tax Return containing the claim. If both are sent on the same day, send the AIF first.
Without the required form, HMRC will not accept the claim. One AIF is needed for each Corporation Tax accounting period claimed, including separate forms where longer accounts require two returns.
The form includes company and period details, the senior internal R&D contact, all agents involved, qualifying costs and the required project descriptions. HMRC specifies how many projects must be described according to project numbers and expenditure coverage.
Save the completed form before submission and retain HMRC's confirmation reference. An AIF is not a substitute for supporting evidence.
What counts as qualifying R&D?
A project must seek an advance in the field, not merely something new to the business. The scientific or technological uncertainty must not be readily resolvable by a competent professional using available knowledge.
Evidence should explain:
The existing scientific or technological baseline.
The advance sought and why it is an appreciable improvement.
The uncertainty and why it could not readily be resolved.
The work undertaken, including testing, failures and changes of approach.
The relevant experience of the competent professionals involved.
Routine coding, ordinary configuration, customer preferences and commercial or managerial problems do not qualify simply because they are difficult. However, combining established technologies can involve qualifying system uncertainty where the statutory tests are met.
A project does not have to succeed to qualify. Unsuccessful work can qualify where it genuinely sought the required advance and met the other conditions. Qualifying R&D ends when the uncertainty is resolved or the work to resolve it stops; later routine development is not automatically eligible.
Which costs can be included?
Eligible categories can include qualifying staff costs, externally provided workers, consumables, software, data licences, cloud computing and qualifying contracted-out R&D. Each category has conditions and restrictions.
Check payment requirements, overseas restrictions, connected-party rules and who is entitled to claim where work is contracted out. Do not assume that the customer and contractor can both claim for the same work.
General rent, rates and other ordinary overheads are not automatically qualifying expenditure. Certain qualifying indirect activities may be included, but only through permitted cost categories. Use reasonable, evidenced apportionment rather than arbitrary percentages.
HMRC enquiries and the tribunal lesson
HMRC may question a claim's technical basis, cost allocation or compliance with filing requirements. A professional-looking report or a large expenditure figure does not establish eligibility.
Professional reporting of Tanglewood Care Services Ltd v HMRC describes a rejected claim involving £880,286 of enhanced R&D expenditure on Covid-19 infection-control work. This was not an £880,286 cash refund. The reported decision illustrates the distinction between operational problem-solving and a qualifying scientific or technological advance, and the importance of evidence from appropriately competent professionals.
Each case depends on its facts. A rejected claim does not automatically lead to a penalty: inaccuracy penalties depend on the behaviour involved and other statutory conditions. Incorrect claims can nevertheless result in lost relief, repayment, interest, penalties where applicable and professional costs.
Evidence and governance
Retain project briefs, technical designs, experiment logs, test results, failed approaches, version histories, meeting notes, staff roles, time records or reasonable apportionment workings, invoices and payroll records. Link expenditure to the relevant project and accounting period.
Keep records under the applicable company and tax-record retention rules, and longer where required for an open enquiry or other statutory reason. Evidence recorded during the work is generally more persuasive than an unsupported reconstruction after the event.
Directors should review the technical narrative, costs, notification position and AIF before approving the claim. Ask advisers what primary evidence they examined and how fees or conflicts are managed. Reassess continuing projects each year rather than repeating a previous claim unchanged.
Step By Step Procedure
Confirm the Corporation Tax accounting period, period of account and applicable relief scheme.
Check notification requirements immediately, including previous-claim exceptions, and diarise the deadline.
Identify a competent technical lead and document each project's baseline, advance, uncertainty and work undertaken.
Build an evidenced cost schedule, checking payment, contracting-out, overseas and connected-party rules.
Exclude routine work and non-qualifying expenditure; document reasonable allocations.
Prepare the AIF and reconcile its information to the claim computation and underlying records.
Obtain director and technical review, then submit the AIF before the tax return containing the claim. Retain copies and confirmations.
Preserve the evidence pack and review any unsupported historic claim promptly with an experienced adviser.
Frequently Asked Questions And Answers
Does developing software automatically qualify?
No. The work must seek a qualifying technological advance and resolve uncertainty that a competent professional could not readily resolve. Routine development is not enough.
Does the project have to succeed?
No. Qualifying attempts can be unsuccessful. The key is the advance sought, genuine uncertainty, qualifying activities and supporting evidence.
Is claim notification always due six months after the tax accounting period?
No. The deadline is calculated from the end of the period of account covered by the financial statements. These periods often coincide, but not where accounts span more than 12 months. Notification requirements also depend on claim history and exceptions.
Can I submit the AIF after the tax return?
Not to support the claim already submitted. The AIF must come first, including where both are submitted on the same day. Obtain advice promptly if the order was wrong, as correction may depend on remaining claim and amendment deadlines.
What makes a company eligible for ERIS?
A qualifying company must meet the R&D SME definition, be loss-making for the relevant tax purposes and satisfy the intensity condition or a permitted grace-period rule, alongside the other requirements.
Does a 20% merged-scheme credit mean a 20% cash refund?
No. It is a taxable expenditure credit. Corporation Tax, the statutory calculation and payment restrictions affect the final benefit.
What should we do about an old claim we cannot support?
Review the facts and evidence with an experienced adviser. If the claim is incorrect or overstated, identify the appropriate amendment or disclosure route. Do not invent evidence or wait for HMRC to make contact.
How can 360 Accounts help?
360 Accounts & Bookkeeping can help organise accounting evidence, check the claim timetable and coordinate with appropriate R&D specialists where technical or legal expertise is needed.