R&D Tax Credit FAQs | Your Questions Answered by InnoClaim

What are R&D tax credits?

R&D tax credits are a government-backed incentive designed to reward UK companies that invest in research and development. They allow businesses to claim back a percentage of qualifying R&D expenditure, either as a cash payment or a reduction in corporation tax. The relief is available under two schemes:

Enhanced R&D Intensive Support (ERIS) – for qualifying R&D intensive SMEs
New Merged R&D Expenditure Credit – for other SMEs and large companies

This valuable incentive can be reinvested in the business to boost future projects.

Who can claim R&D tax credits?

R&D tax credits are available to limited companies, regardless of industry or size, as long as they are:

Subject to UK corporation tax
Undertaking eligible R&D activities that seek an advance in a field of science or technology
Spending money on qualifying R&D costs (such as staff, materials, and subcontractors)

Startups, SMEs and large enterprises across all industries such as engineering, manufacturing, life sciences, software can all be eligible for the relief.

How do I know if my business qualifies?

To qualify for R&D tax credits, your project must:

Seek an advance in a field of science or technology – improving or developing a product, process, or service beyond existing knowledge
Overcome scientific or technological uncertainty – a problem that a competent professional in the relevant field cannot routinely resolve
Require research, testing, or experimentation – showing a structured process of development

If your project involved trial and error, software development, material innovation or process improvements, it may be eligible for R&D tax relief.

What costs can I claim?

Companies can claim back up to 27% of qualifying expenditure, which includes:

Staffing costs – Salaries, Employers’ National Insurance and Employers’ Pension Contributions for employees involved in R&D
Subcontractor costs – Payments to third parties working on eligible R&D activities
Externally provided workers – Temporary staff (e.g. agency) contributing to the R&D project
Materials & consumables – Materials used up or transformed by the R&D activities, e.g. development of prototypes
Software & cloud computing – Licenses and tools essential for R&D work

Understanding which costs are eligible ensures your claim is maximised and fully compliant with HMRC guidelines.

What reliefs are available to me?

There are two primary R&D tax relief schemes:

Enhanced R&D Intensive Support (ERIS) – Designed for R&D-intensive SMEs, allowing higher claim rates for businesses where qualifying R&D spend is at least 30% of total expenditure.
New Merged R&D Expenditure Credit – Designed for all other qualifying companies regardless of their size. This relief provides a tax credit of up to 16.2% on qualifying costs.

The right relief for your business depends on company size, profit position and level of R&D spend.

What is pre-notification?

Pre-notification is a new requirement introduced by HMRC for R&D tax credit claims. If your company is claiming R&D tax relief for the first time, or if you haven't made an eligible claim in the last three years, you must notify HMRC in advance of your intention to claim.

Deadline: You must submit your pre-notification within six months after the end of your accounting period. Failing to pre-notify may result in your claim being denied.

What industries qualify for R&D tax credits?

R&D tax credits apply to a wide range of industries, including but not limited to:

Technology & Software – AI, cybersecurity, cloud computing, app development
Manufacturing & Engineering – Process automation, material innovation, prototyping
Life Sciences & Healthcare – Drug development, medical device innovation, biotech
Construction & Architecture – Sustainable building techniques, new materials
Food & Agriculture – New food production methods, sustainable farming technologies
Automotive & Aerospace – Electric vehicle technology, aerodynamics, propulsion systems

Any industry can qualify if the company is developing new or improved products, services, or processes while tackling scientific or technological uncertainties

What is the process of claiming R&D tax credits?

The R&D tax credit process involves several key steps:

Eligibility Assessment – Identifying whether your project qualifies under HMRC’s guidelines.
Gathering Financial Data – Identifying and calculating qualifying expenditure (staff costs, materials, subcontractors, etc.)
Technical Report Preparation – Documenting the scientific/technological uncertainties faced and how they were overcome.
Client Review & Submission – Reviewing the claim before submission to HMRC.

Working with qualified tax advisors ensures your claim is accurate, compliant and maximised.

How long does it take for the claim to be processed?

HMRC typically processes R&D tax credit claims within 40 days, but this can vary depending on:

The complexity of the claim
Whether HMRC raises an enquiry
The time of year (peak periods may cause delays)

What is an AIF (Additional Information Form)?

The AIF (Additional Information Form) is a mandatory document introduced by HMRC that must be submitted before making an R&D tax credit claim.

The AIF requires:

A breakdown of R&D activities for each project summarised
Justification of scientific/technological uncertainties
Details of qualifying costs

Failing to submit an AIF before your R&D tax credit claim will result in HMRC rejecting the claim.

Is there a deadline to claim R&D tax credits?

Yes. You must submit your R&D tax credit claim within two years from the end of your company’s accounting period (subject to completion and submission of the pre-notification form within required time limits).

Example:

If your financial year ended on 31 March 2024, you must submit your claim by 31 March 2026.

If you miss this deadline, your claim will be invalid and you won’t be able to recover any eligible R&D expenditure.

How can I be eligible for ERIS?

The Enhanced R&D Intensive Support (ERIS) is designed to support R&D-intensive SMEs by providing an increased rate of relief.

To qualify for ERIS, your company must:

Be an SME (fewer than 500 employees and either a turnover below €100m or a balance sheet gross assets under €86m)
Spend at least 30% of total business expenditure on qualifying R&D activities
Have made a (tax adjusted) trading loss in the period (before accounting for any R&D claim)
Be undertaking a project that seeks to achieve an advance in a field of science or technology which involves scientific or technological uncertainty

If eligible, ERIS allows SMEs to claim a higher cash benefit, providing more substantial support for innovation-intensive businesses.

How can AI help prepare my R&D tax credit claim?

AI-powered tools can significantly enhance the accuracy, efficiency and compliance of your R&D tax credit claim.

How AI Can Help:

Automated Eligibility Checks – AI can help assess whether your projects meet HMRC’s criteria.
Faster Data Analysis – AI can scan relevant project documentation such as grant/patent applications and internal records.
Technical Report Assistance – AI can assist with generating well-structured R&D reports that align with HMRC’s compliance requirements.
Error Reduction – AI reduces human error and can provide valuable industry knowledge to support claims.

By leveraging our cutting-edge AI technology and working with qualified tax advisors, businesses can maximise their claim while ensuring compliance and efficiency.

What is an HMRC R&D tax credit enquiry?

An HMRC R&D tax credit enquiry is an official review process where HMRC seeks to investigate a submitted claim to verify its accuracy and eligibility.

Why might HMRC open an enquiry?

Insufficient evidence – Lack of technical justification or financial breakdowns.
Overclaimed costs – Expenses included that don’t meet HMRC’s criteria.
Random selection – HMRC also conducts random compliance checks.

What happens during an enquiry?

HMRC will request detailed explanations and supporting documents.
You may need to justify how your project meets R&D eligibility criteria.
HMRC may reduce or reject the claim if evidence is insufficient.

How to avoid an enquiry:

Work with qualified tax professionals to ensure compliance.
Provide clear and detailed technical documentation.
Use AI-powered checks to help eliminate errors and miscalculations.

If your business is facing an HMRC R&D tax enquiry, seek expert advice immediately to respond effectively and protect your claim.

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