R&D Tax Credits for Small Companies: Save Up to 27% on Innovation Costs
If your company spends money solving technical problems — developing new products, processes, or services — you may qualify for R&D tax relief. For small companies, this can reduce your Corporation Tax bill by up to 27% of qualifying expenditure.
How R&D Relief Works (From April 2024)
The merged R&D scheme (replacing the old SME and RDEC schemes) applies from 1 April 2024:
| Company Type | Relief Rate | Benefit |
|---|---|---|
| Standard | 20% above-the-line credit | 20% of qualifying spend |
| R&D intensive (≥30% spend on R&D) | 27% enhanced credit | 27% of qualifying spend |
| Loss-making R&D intensive | Payable credit at 14.5% | Cash from HMRC |
Example: Profitable Company
Your company spends £100,000 on qualifying R&D:
- Enhanced expenditure: £100,000 × 20% = £20,000 credit
- CT reduction at 25%: £20,000 off your tax bill
Example: Loss-Making R&D Intensive Company
Your company spends £200,000 on R&D out of £500,000 total costs (40% = R&D intensive):
- Enhanced rate: 27%
- Credit: £200,000 × 27% = £54,000
- Payable credit (loss-making): £54,000 × 14.5% = £7,830 cash from HMRC
What Qualifies as R&D?
HMRC's definition is broader than you might think. It's not just lab work:
✅ Qualifying Activities
- Developing new software features or algorithms
- Creating new manufacturing processes
- Designing new products or improving existing ones
- Overcoming technical challenges that competent professionals can't easily solve
- Prototyping and testing
- Developing new materials or formulations
- Clinical trials and scientific research
❌ What Doesn't Qualify
- Routine software development (using well-known techniques)
- Market research
- Social science or economics research
- Arts, humanities
- Cosmetic or aesthetic changes
- Quality control (unless developing new methods)
- Simply applying existing knowledge
The Key Test
Ask: "Could a competent professional in this field readily solve this problem?" If no — if there's genuine technological uncertainty — the work may qualify.
Qualifying Costs
| Cost Type | Qualifies? |
|---|---|
| Staff costs (salary, NIC, pension) | ✅ |
| Subcontractor costs | ✅ (65% of cost) |
| Materials consumed in R&D | ✅ |
| Software licences used for R&D | ✅ |
| Utilities (power, water, fuel for R&D) | ✅ |
| Capital equipment | ❌ (use capital allowances) |
| Rent | ❌ |
CT600 Reporting
R&D relief is claimed on the CT600 with supporting documentation:
| Box | Description |
|---|---|
| Box 99 | Tick if claiming R&D relief |
| Box 530 | R&D credit claimed |
| CT600L | Supplementary page for R&D claims |
You'll also need:
- A written technical narrative explaining the R&D
- Breakdown of qualifying costs
- Advance notification to HMRC (required from April 2023 for new claimants)
Common Mistakes
- Not claiming at all — many companies don't realise they qualify
- Over-claiming — HMRC has increased compliance activity; ensure genuine uncertainty
- Poor documentation — write the technical narrative as you go, not retrospectively
- Missing the advance notification — new claimants must notify HMRC within 6 months of period end
- Including non-qualifying costs — capital equipment and rent don't qualify
Filing with Taxpipe
Taxpipe handles standard CT600 filings. For R&D claims, we recommend working with an R&D specialist on the technical narrative and cost breakdown, then filing the CT600 with the final figures through Taxpipe.
Filing your CT600? Start with Taxpipe — £59, no hidden fees.