Research and development tax relief
The UK gives a taxable credit worth 20% of qualifying R&D spend to the company that carries out the work. Where the work is done, and which entity contracts for it, decides whether the UK subsidiary can claim at all.
Whether UK development work qualifies for the credit
The UK gives a taxable credit worth 20% of qualifying research and development spend, and polices it heavily. Where the work is done and who contracted for it decide whether a UK company can claim at all; a deadline six months after the year end decides whether it still may.
What you get
- Qualifying activity assessed
- Eligible cost categories identified
- Subcontracted and overseas work tested
- Technical narrative prepared
- Claim notification filed in time
- Claim submitted with the return
What we do
Whether you qualify
The test is technological uncertainty a competent professional could not readily resolve, not commercial novelty. Sometimes the answer is no, and we will say so.
Where the work is done, tested
Since April 2024 subcontracted work and externally provided workers largely qualify only where the activity happens in the UK. A UK company that subcontracts the development back to the parent cannot claim.
Who contracted for it
Relief generally follows the company that contracted for the work and bore the risk. In a group that depends on what the intercompany agreements say.
The notification deadline
Companies new to claiming must notify HMRC within six months of the period end. Miss it and the year is gone regardless of merit. This is how most good claims are lost.
The technical narrative
Prepared with your engineers, in the detail HMRC now requires with every claim. Enquiry rates have risen sharply and a claim that cannot be defended is worse than none.
Filed with the return
And defended if HMRC opens an enquiry.
UK research and development relief is generous and it is heavily policed. Since April 2024 a single merged scheme gives most companies an above-the-line credit worth 20% of qualifying expenditure, which is taxable, so the net benefit is smaller than the headline. Loss-making, research-intensive small companies can access a more generous route. Both require the same thing: that the company claiming carried out qualifying work.
What qualifies
The test is not commercial novelty. It is whether the project sought an advance in science or technology through the resolution of scientific or technological uncertainty that a competent professional in the field could not readily deduce. Building a product that is new to your business is not enough. Solving a technical problem where the solution was not obvious to someone who knows the field is.
Qualifying costs include staff costs for the people doing the work, a proportion of externally provided workers, consumables used up in the process, software and data licences used directly, and payments to certain qualifying bodies. Capital expenditure and the cost of production do not qualify.
The rules that decide whether a UK subsidiary can claim
- Where the work is done. Since April 2024 subcontracted work and externally provided workers largely qualify only where the activity takes place in the UK, with narrow exceptions. A UK company that subcontracts its development back to the parent's engineers overseas will usually not get relief for it.
- Who contracted for the work. Where one company contracts another to carry out R&D, the relief generally goes to the one that contracted for it and bore the risk, not the one that performed it. In a group this needs the intercompany agreements to say what happened.
- Subsidised expenditure and grant funding affect the position and need to be identified rather than discovered.
The notification deadline
Companies new to claiming, or that have not claimed recently, must notify HMRC of an intention to claim within six months of the end of the accounting period. Miss it and the claim for that year is gone, regardless of merit. This is the single most common way a valid claim is lost, and it happens because the deadline falls long before anyone is thinking about the tax return.
What we do
We establish whether the UK company qualifies, which sometimes means telling you it does not. Where it does, we identify the qualifying projects with your technical people, gather the cost categories, prepare the technical narrative and the additional information HMRC now requires with every claim, file the notification in time, and submit the claim with the corporation tax return. Where a claim is enquired into, we handle it.
What we need from you
- A description of what your UK people build, from someone technical
- Payroll costs for the people involved and the proportion of their time
- Any subcontracted development, and where it was carried out
- Grants or other funding received for the work
Common questions
Our developers are overseas. Can the UK company claim?
Generally not for that work. The rules from April 2024 restrict relief for subcontracted work and externally provided workers to activity carried out in the UK, with narrow exceptions. Where the development happens matters more than where the company is.
Is this only for laboratories?
No. Software development often qualifies where there is genuine technical uncertainty. What does not qualify is building something that is merely new to your business using known techniques.
What is the notification deadline?
Companies new to claiming must tell HMRC within six months of the end of the accounting period that they intend to claim. Miss it and that year is lost. It is the most common way a good claim is thrown away.
How closely does HMRC look at these?
Very. Claims now require a detailed technical and cost breakdown submitted alongside them, and enquiry rates have risen sharply. A claim that cannot be defended is worse than no claim, so we will say when we think there is nothing there.
Related services
Bookkeeping and annual accounts
QuotedUK bookkeeping and statutory accounts
Xero set up in the parent's currency and account codes, bank feeds, monthly close, and year-end accounts under FRS 102, FRS 101 or IFRS filed at Companies House and with the tax return.
Management accounts and group reporting
QuotedA monthly pack in the group's format, on the group's close calendar
Monthly close, the reporting pack in the group's template, budget against actual, intercompany agreed, and the year-end schedules for the group auditors.
Expense management for a UK operation
QuotedA UK expense policy, the system behind it and the VAT it recovers
A UK expenses policy that matches HMRC's rules, an app your people will use, approvals that route to the right person, and the VAT recovered on everything eligible.
Get a fixed quote
Tell us where the parent company is and what the UK operation has to do.
