Claiming research and development tax relief: what innovators need to know

Steven Murray, Partner and Head of IP and Technology Disputes, recently spoke to Jack Morgan, Commercial Director at Apogee Associates, midlands-based business advisors, about research and development (“R&D”) tax relief.

Q: How does the UK government support innovation?

The government offers two key financial incentives to support innovation: R&D tax relief and grant funding. These options can complement each other, depending on the stage of your business.

R&D tax relief has a retrospective nature and helps companies offset the costs of innovation by reducing their corporation tax or offering cash credits, while grants provide upfront funding for specific projects. Combining both can be a powerful way to fuel growth, with grants supporting early-stage development and tax relief helping recover costs after the money has been spent on the project.

Q: How does R&D tax relief help innovators?

R&D tax relief allows businesses to either reduce their corporation tax bill or claim a cash credit, depending on their profitability. For loss-making companies, it’s possible to carry losses forward, giving them a financial cushion until they can generate profits. This flexibility ensures that businesses at various stages of growth can still benefit from the incentive, regardless of whether they are making a profit or reinvesting their resources.

Q: Do you think the government is looking to reshape the incentive as part of the autumn budget?

We think it’s unlikely that there will be major changes, as the R&D tax relief scheme has already undergone significant updates. The SME and RDEC schemes, which were designed for smaller businesses and larger organisations respectively, were merged a year ago to simplify how companies access the incentive.

The ERIS scheme was introduced to offer a higher recovery rate for businesses with a strong focus on R&D. The reform also aimed to improve compliance, introducing new requirements such as the Additional Information Form, which provides HMRC with detailed information on the R&D projects and associated costs included in the claim.

Chancellor Rachel Reeves has also confirmed that R&D tax credit rates will remain unchanged. However, we’ll need to wait until the budget is published to get a full picture of the government’s plans for the incentive.

Q: How can businesses make sure they’re making good use of the incentive?

With the introduction of the merged and ERIS schemes, it’s essential to ensure that you’re claiming under the correct framework. For example, loss-making businesses previously using the SME scheme may now be eligible for the ERIS scheme, which allows them to benefit from a higher recovery rate compared to the merged scheme. The ERIS scheme is designed to support “R&D intensive” businesses—those heavily investing in R&D. It’s therefore crucial to assess if your business meets the R&D intensity threshold set out by the government. Determining which scheme is best for your business can be challenging, but professional support can guide you through this and other key aspects of the process.

Q: What should businesses look out for?

There are a few key things to keep in mind. The Additional Information Form is now a mandatory requirement and helps HMRC assess claims more thoroughly. Submitting it correctly is crucial, as failure to do so will result in a rejected claim. Staying on top of these requirements is essential, as they are now a core part of the R&D tax relief process.

Q: Why does it make sense to seek professional support?

With increased scrutiny from HMRC, professional support can ensure your claim is accurate and compliant. The rules surrounding R&D tax relief can be complex, and errors in your claim could trigger enquiries or lead to rejected claims. Professional advisors help businesses claim exactly what they’re entitled to—nothing more, nothing less. This approach ensures compliance and reduces the chance of any issues that could slow down the application process.

Conclusion:

As R&D tax relief continues to evolve, it remains a valuable tool for UK businesses engaged in innovation. However, to make the most of it, companies need to stay aware of changes and ensure they are fully compliant with HMRC requirements. Seeking professional support can make this process smoother and help you focus on what matters most: driving your innovation forward.