R&D tax accountants check whether a company and its projects meet the R&D tax relief conditions, then gather the evidence a claim depends on. The relief is open only to companies chargeable to UK Corporation Tax, and a project must seek an advance in a field of science or technology by resolving scientific or technological uncertainty. [1] The company also needs to be able to explain the work it did to overcome that uncertainty.
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What R&D tax accountants do on a claim
R&D tax accountants test whether a company, and each project it runs, meets the conditions for R&D tax relief, then collect the technical explanations and paid costs the claim relies on. The relief is open only to companies chargeable to UK Corporation Tax. [1]
A review of claiming R&D tax relief could identify which projects fit, the dates each one ran between and the spending that sits inside them. Our guide on how R&D tax credits are calculated covers the arithmetic and cost categories that follow.
What are the requirements to claim R&D tax credits?
An accountant usually works through two tests. The first concerns the company: the merged RDEC scheme can be claimed by companies that are trading, are chargeable to Corporation Tax and have a project meeting the definition of R&D. [2]
The second concerns the project, which has to seek an advance in a field of science or technology by resolving scientific or technological uncertainty. The aim has to be an advance in the overall field, not just within the company's own business.
Work can still be an advance where another company has developed the process, product or service, provided it is not publicly known or available. Advances sought in the arts, the humanities or the social sciences, economics included, fall outside the relief.
Our guide to claiming R&D tax credits for earlier years covers notification and timing.
Questions an adviser asks about the advance
In this setting, science is the systematic study of how the physical and material universe is made up and behaves, while technology is putting scientific principles or knowledge to practical use. From 1 April 2023 mathematical advances can be treated as science, whether or not they represent the nature and behaviour of the physical and material universe.
The benchmark is whether a competent professional working in that field would recognise the advance as an appreciable improvement. Improvements of this kind may include creating something that adds to overall knowledge or capability in the field, or appreciably improving something that already exists, such as to cut costs or waste, where the change is genuine and goes beyond a minor or routine upgrade.
Using science or technology to reproduce the effect of a current process, material, device, product or service in a new or improved way may also count. An accountant may ask the engineers or developers which of these the project was aiming for.
Records that show the uncertainty was real
Uncertainty here means an expert could not say whether something was technologically possible, or how to achieve it, even after looking at all the available evidence. Put another way, neither the company nor experts in the field can already know about the advance or how to reach it.
The claim rests on being able to explain the work done to overcome that uncertainty, and a simple account of what worked and what failed during the project can serve. It should also set out why a professional could not easily work out the advance, which can be done by showing that other attempts at a solution had failed.
Another route is to show that the project team are professionals in the field and have them explain the uncertainties involved. An accountant may draw these accounts out of the technical staff, since they know where the work stopped being straightforward.
Is R&D expenditure tax deductible?
The treatment turns on the scheme used. For accounting periods beginning on or after 1 April 2024, the merged RDEC scheme and enhanced R&D intensive support (ERIS) replace the old RDEC and SME schemes, with identical qualifying expenditure rules but a different calculation of the credit amount. [2]
The merged RDEC scheme is a taxable expenditure credit. A company that is eligible for ERIS can still choose the merged RDEC scheme, but it cannot claim under both schemes for the same expenditure.
How the credit is taxed and paid out is explained on The RDEC scheme explained page, and ERIS is covered in the calculation guide mentioned above.
The sources supplied do not set out a general rule on whether R&D spending is deductible, and the treatment depends on the scheme used. Under the merged RDEC scheme, the credit is a taxable expenditure credit that is liable to Corporation Tax because it is classed as trading income.
The sources supplied do not set out a general rule on whether R&D spending is deductible, so this guide cannot confirm that point.
Matching paid costs to each project
Costs are counted only from the start to the end of the project, which begins when work starts on resolving the uncertainty and ends when the uncertainty is resolved or that work stops. A cost has to have been paid already, as costs not paid before the claim is made are not eligible. [3]
Staff costs follow the time people spent on the R&D project and include bonuses and secondary Class 1 National Insurance contributions paid by the company. Licence fees for software used for R&D can be claimed, along with a reasonable share where software is only partly used in the R&D.
Capital expenditure is one example of a cost that cannot be claimed. Contractor and externally provided worker costs are dealt with in the calculation guide.
Sources
Rates, thresholds and dates in this guide come from these sources. Check the source for the current figure.