Last edited 01 Oct 2020

Research and development tax relief

Research and development tax relief is a specialist piece of tax relief made available by governments to provide incentives to businesses.

It is designed to provide support to companies who invest in research and development (R&D), to help bring new products to market, to develop new processes, or to improve existing products or processes.

R&D tax relief should be considered at the start of a project as it can have a significant impact on costs and the budget and may even make an unfeasible project, feasible.

This article is aimed primarily at companies operating in the UK, there are similar schemes in many EU countries.

There are two schemes available to UK companies, an SME Scheme, aimed at Small to Medium Sized Companies and a Large Company Scheme for companies that do not meet the criteria of the SME Scheme.

To qualify for the SME Scheme the following criteria need to be met:

The company (and its associated companies, subsidiaries, parent, JV) should employ less than 500 people and the company's (and its associated companies) should have a combined balance sheet less than €86m or a combined turnover less than €100m.
The company must be performing the R&D for its own benefit and not be paid by someone else to perform the R&D for them.
The company must not be in receipt of some other form of EU Notifiable State Aid associated with the project. EU Notifiable State Aid includes funding from some Local Government Organisations, the Technology Strategy Board, and the Manufacturing Advisory Service.

Any company that does meet the criteria of the SME Scheme is eligible to claim under the Large Company Scheme.

In September 2020, HM Revenue & Customs reported that £175m was paid to UK construction firms in research and development tax credits in the previous year,a significant increase on the £90m paid the year before.