Is your UK business engaged in solving technical or scientific challenges? Are you investing time and resources into developing new products, improving existing ones, or experimenting with innovative technologies? If so, you may be eligible for one of the UK government’s most generous and underclaimed financial incentives Research and Development (R&D) tax relief.
This relief is designed to support businesses of all sizes that are advancing science or technology. It is not just reserved for laboratories or biotech companies. From software firms building AI models to manufacturers refining energy-efficient processes, any company that seeks to resolve uncertainty in a technical or scientific field could qualify.
Yet, despite its wide applicability, thousands of eligible businesses either don’t claim or make incorrect claims due to a lack of understanding. This guide aims to eliminate the confusion and help you determine whether your project and expenses qualify.
What Exactly Is Research and Development (R&D) Tax Relief?
R&D tax relief is a government-backed initiative that allows UK companies to reduce their Corporation Tax liability or receive a cash credit in return for investing in innovation. The relief applies to businesses undertaking projects that aim to achieve a scientific or technological advance, particularly when that progress involves overcoming uncertainty.
Introduced in 2000 and revised several times to encourage wider adoption, the R&D relief scheme is now split into different frameworks based on company size, funding status, and accounting period. These include the SME R&D scheme, the R&D Expenditure Credit (RDEC), and the merged scheme applicable from 1 April 2024.
Only companies liable to UK Corporation Tax can claim, and the relief applies to a wide range of sectors beyond what is traditionally considered “scientific”.
How Does HMRC Define a Field of Science or Technology?
To qualify for relief, the project must aim to make an advance in a recognised field of science or technology. These definitions have been clarified and updated in HMRC guidance.
Science, in this context, refers to the systematic study of the nature and behaviour of the physical and material universe. From 1 April 2023, mathematical advances are also recognised as scientific contributions, whether or not they relate directly to the physical world.
Technology involves the practical application of scientific principles. It includes activities such as software engineering, mechanical design, chemical processing, and materials science.
The advance may:
- Have physical consequences (e.g., a better device or system)
- Increase the overall knowledge or capabilities in the sector
To be valid for relief, the outcome must be considered an appreciable improvement, not just a minor tweak. It must go beyond what a competent professional could easily deduce or achieve using existing tools or knowledge.
What Kinds of Projects Qualify for R&D Tax Relief?
HMRC specifies that the project must aim to create or contribute to an advance in the overall field, not just an improvement within your company. Even if another company has made a similar breakthrough, your project may still qualify if the knowledge is not publicly known or readily accessible.
Qualifying projects typically involve:
- Creating new materials, processes, products, or services
- Making significant improvements to existing ones
- Using scientific or technological methods to replicate a known effect in a new or improved way
For example, an agribusiness developing a waterless irrigation system to improve crop yield or a fintech firm creating a new algorithm for fraud detection based on live behavioural analysis could both be undertaking qualifying R&D.
However, the scope excludes projects aimed at making advances in:
- The arts
- Humanities
- Social sciences (including economics)
What Is Considered a Scientific or Technological Uncertainty?
Central to eligibility is the presence of a scientific or technological uncertainty. This exists when a competent professional working in the field cannot, based on available information or industry knowledge, determine whether something is possible or how to achieve it.
For instance, a company attempting to build a real-time speech recognition engine that works in noisy environments across multiple dialects may face uncertainties in performance optimisation, latency, and accuracy areas where no standard solution exists.
It’s not enough to undertake a project with commercial risk. There must be technological unknowns that require a methodical investigation. This is what distinguishes genuine R&D from routine development.
How Should a Business Demonstrate That It Attempted to Resolve Uncertainty?
To substantiate a claim, you must explain how your team tried to overcome the identified uncertainties. HMRC expects a technical narrative that documents:
- What the advance was intended to achieve
- Why the outcome wasn’t readily achievable by a professional in the field
- What approaches were attempted (including those that failed)
- The logic behind the chosen methodologies or solutions
This doesn’t need to be complex, but should clearly show that a structured approach was used to explore unknowns. The narrative should also identify the roles and qualifications of individuals involved, reinforcing the credibility of the investigation.
What R&D Costs Can Businesses Claim for Tax Relief?
The list of qualifying costs is extensive but must relate directly to the R&D project. HMRC allows relief on both core and indirect supporting activities.
Key Cost Categories
| Category | Claimable? | Notes |
| Staff salaries, pensions, NIC | Yes | Proportional to time spent on R&D |
| Agency (EPW) staff costs | Yes | 65% of payment if unconnected |
| Subcontractor/contracted R&D | Yes | Conditions apply for connection and control |
| Consumables (materials, fuel) | Yes | Must be used up in the R&D |
| Software licences | Yes | Pro-rated if not used exclusively |
| Data and cloud computing | Yes | Allowed from 1 April 2023 |
| Clinical trial volunteers | Yes | Relevant in healthcare R&D |
| Capital expenditure | No | Separate relief may apply |
| Rent, rates, and IP costs | No | Not claimable under R&D relief |
The costs must fall within the duration of the project, beginning from when work starts to resolve uncertainty and ending when it is resolved or the effort ceases.
How Do Grants or Subsidies Affect R&D Tax Relief?
The interaction between R&D relief and state aid has undergone major changes.
Before 1 April 2024
- SMEs receiving notified state aid had to claim under the RDEC scheme
- Partial subsidies allowed the remainder to be claimed under the SME scheme
After 1 April 2024
- Under the merged scheme, businesses can now claim subsidised costs without restriction, simplifying the process and increasing accessibility
This change particularly benefits startups and scale-ups that rely on Innovate UK or Horizon Europe funding.
Can R&D Be Claimed If Your Business Performs It Under Contract?
This depends on whether your company initiated and planned the R&D, or whether it was done on behalf of another entity.
Before 1 April 2024
- Claims were restricted to work contracted by large companies or non-UK tax liable entities
- Claims had to be made under the RDEC scheme
After 1 April 2024
- Only the company that made the decision to undertake R&D and planned the project can claim
- If your company were simply executing instructions, you could not claim
To qualify under the new rules, ensure you maintain clear documentation proving ownership and control of the R&D process.
What Are the Updated Rules for Contractors and Subcontractors?
The treatment of costs when R&D is outsourced or performed by external parties depends on the connection status and project control.
| Scenario | Claimable Amount |
| Contractor unconnected to the company | 65% of the payment |
| Contractor connected to company | Lower of payment or cost |
| The company performs R&D for another | Only if it planned the R&D |
Overseas R&D is generally not claimable unless specific exceptions apply, particularly after April 2024, when HMRC tightened rules on overseas activity.
How Can Companies Maximise Their R&D Tax Relief Claim?
Claiming R&D tax relief is both an opportunity and a responsibility. To maximise your claim and remain compliant:
- Understand and document scientific/technological uncertainty
- Keep detailed records of staff time, costs, and experiments
- Work with professionals who understand HMRC criteria
- Avoid inflating costs with unrelated activities
- Update your claim strategy to reflect post-April 2024 rules
Consulting the Corporate Intangibles Research and Development Manual (CIRD) and relevant HMRC guidance is highly recommended.
Why Should Businesses Prioritise R&D Tax Relief in 2025?
In an economic landscape that rewards innovation, R&D tax relief offers a critical financial incentive for UK businesses. It not only reduces tax liabilities but also frees up capital to reinvest in growth, new products, and research.
Companies that prioritise understanding and claiming R&D relief can:
- Improve cash flow and profitability
- Compete more effectively in their markets
- Attract funding and investors through stronger financials
With simplified rules and expanded cost categories, 2025 is the best time to ensure your business isn’t leaving money on the table.
FAQs About Research and Development Tax Relief
What qualifies as a technological uncertainty?
A technological uncertainty exists when the outcome of a project cannot be predicted or determined by a professional in the field, even with access to all current knowledge.
Can software development qualify for R&D relief?
Yes, if it involves technical challenges such as building custom architecture, improving algorithms, or integrating complex data sources.
Can I claim if my project failed?
Yes. HMRC does not require the project to succeed, only that genuine uncertainty was addressed in a methodical way.
Can I claim for work done by freelancers or contractors?
Yes, subject to connection rules. Unconnected contractors are usually claimable at 65%.
Are cloud storage and computing now included?
Yes. For accounting periods beginning on or after 1 April 2023, cloud computing and data licence costs are eligible.
Is it necessary to have scientific staff for an R&D claim?
Your team should include professionals competent in the field. Their experience supports the validity of the claim.
What’s the deadline for submitting a claim?
Claims must be made within two years of the end of the relevant accounting period.
