Research & development

Advice on R&D tax RELIEF


R&D tax relief was launched by the UK government in 2000 with the intention of boosting innovation. In its present form, R&D tax credits allow small companies to deduct 230% of their qualifying costs from any profits.  It is also possible to “cash in” losses arising from enhanced R&D expenditure for a payable tax credit. 

However, it is worth noting at this point that the UK Government announced back in 2020 that it is intending to introduce a cap for the tax credit repayment from 1 April 2021.  The PAYE cap will stop companies from claiming a payable tax credit worth more than 300% of their comined PAYE and NIC liability, plus £20,000.  If you wish to consider making an R&D claim it would be prudent to consider actioning this prior to 1 April 2021.

To claim R&D tax relief under the SME scheme your client’s company (together with any connected companies) must have:

  • less than 500 full-time staff

and, either:

  • a turnover under €100 million, or
  • gross assets under €86m on the balance sheet

The claims for R&D enhanced deductions and tax credits are made as part of the annual corporation tax return

Relevant questions:

*does the research intend to achieve a technological advance?

*does it achieve an advance in overall scientific or technological knowledge?

* does the project address an uncertainty that a knowledgeable professional in your field couldn’t quickly and easily work out for themselves?

Many businesses do not appreciate the range of activities and projects that could qualify for R&D relief, for example;

  • unsuccessful and internal projects;
  • expenditure where there isn’t a new product, or expenditure on changes and modifications to existing products
  • non-product related expenditure (e.g. on services and processes).

There are various other technicalities to bear in mind, however, and the best thing to do is liase with ABG and we can talk through the qualifying criteria in full.

How much will my client financially benefit?

If your client is profitable and paying corporation tax then for each £1 spent on R&D they should get a £2.30 deduction for tax purposes meaning they will effectively get 44% tax relief on their R&D expenditure.

If your client is loss making then they can claim an amount equivalent to 14.5p in the £1 from HMRC meaning that for each £1 spent on R&D  they actually receive 33.35p from the taxman.

If your client is using subcontractors rather than employees for R&D the figures referred to above will be slightly lower but it will still be worth talking to ABG.

If you have clients who could benefit from this please contact us on 020 7330 0101 or email

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