How the Research and Development Tax Credit Works
A clear guide to how R&D tax relief works in the UK.
The UK research and development tax credit rewards companies that spend on R&D by reducing their tax bill or paying a cash credit. This page explains how the scheme works: who can claim, what qualifies, and how relief is calculated. It is for information only.
What is the R&D tax credit?
The research and development tax credit is a UK tax relief that allows companies to claim a reduction in Corporation Tax—or, for loss-making companies, a cash credit—on spending that qualifies as R&D. R&D is defined as work that seeks an advance in science or technology and that faces scientific or technological uncertainty. The relief is administered by HMRC under the Corporation Tax rules.
SME scheme vs RDEC
There are two main schemes: the SME scheme (for small and medium-sized enterprises) and RDEC (Research and Development Expenditure Credit), which applies to larger companies and some SMEs that do not qualify for the SME scheme. Under the SME scheme, profit-making companies can get an enhanced deduction; loss-makers can surrender losses for a cash credit. Under RDEC, companies receive a taxable credit calculated as a percentage of qualifying expenditure. The rates and rules are set by HMRC and can change.
Qualifying expenditure and how relief is given
Qualifying expenditure typically includes staff costs, subcontractor costs, consumables, and (from April 2023) some software and data costs. The company must be carrying out the R&D itself or funding it. Relief is given by increasing the deductible R&D expenditure (SME) or by the RDEC credit. The exact amount depends on the scheme, the company’s position, and the rates in force. HMRC guidance and legislation should be consulted for current figures.