Research and Development (R&D) expenditure credit
How to claim R&D expenditure credit (RDEC) for Corporation Tax relief on your company's R&D, if you’re a large company or small and medium-sized enterprise.
R&D tax relief supports companies that work on innovative projects in science and technology.
You cannot claim if the advance is in:
- the arts
- humanities
- social sciences, including economics
R&D expenditure credit (RDEC)
Expenditure credit is a tax credit and can be claimed if you’re either a:
- large company
- small and medium-sized enterprise (SME) and you cannot claim R&D tax relief for small and medium-sized enterprises
Whether your company makes a profit or loss, some or all of the expenditure credit may be used to settle your company’s, or other group companies’ Corporation Tax liabilities.
In some circumstances the expenditure credit can:
- be used to settle other tax liabilities your company is liable for
- lead to a payment of credit to your company
Expenditure credit rates
The expenditure credit is calculated as a percentage of your qualifying R&D expenditure, the rates are:
- 11% on expenditure incurred from 1 April 2015 up to and including 31 December 2017
- 12% on expenditure incurred from 1 January 2018 up to and including 31 March 2020
- 13% on expenditure incurred from 1 April 2020 up to and including 31 March 2023
- 20% on expenditure incurred from 1 April 2023
Check what expenditure qualifies for expenditure credit
Before you make a claim for expenditure credit, check that the costs:
- are part of a specific project to make an advance in science or technology, it cannot be an advance in the arts, humanities or social sciences, including economics
- meet the standard definition of R&D
- qualify for expenditure credit, listed in the section ‘Which expenditure qualifies for expenditure credit’
Which expenditure qualifies for expenditure credit
You can claim the expenditure credit on some of the costs you incur from the start to the end of the R&D project.
R&D starts when work begins to resolve the scientific or technological uncertainty and ends when that uncertainty is resolved, or the work to resolve it stops.
The following information will tell you which costs you can and cannot claim for.
You can also find further guidance in CIRD82000 of the Corporate Intangibles Research and Development Manual.
Consumable items
You can claim for the relevant proportion of consumable items used up in the R&D, this includes:
- fuel
- materials
- power
- water
You cannot claim the costs if you sell or transfer ownership of the consumable items used up in the R&D.
Clinical trials volunteers
For R&D projects in the pharmaceutical industry, you can claim for payments made to the subjects of clinical trials.
Contributions for independent R&D
You can claim for contributions made for independent R&D, as long as you’re a large company.
The person receiving the contribution must be:
- a qualifying body
- an individual
- a firm whose members are all individuals
They cannot be connected to your company.
The contributions made by you for the independent R&D must:
- be relevant to your trade
- not be sub-contracted by your company
You cannot claim any contributions if you’re a SME.
Data licence and cloud computing
For accounting periods beginning on or after 1 April 2023, qualifying expenditure is extended to include the relevant elements of data licence costs and cloud computing costs.
A data licence is a licence to access and use a collection of digital data.
Cloud computing includes:
- data storage
- hardware facilities
- operating systems
- software platforms
You can claim for most data and cloud computing costs spent on R&D.
Externally provided worker costs
Workers supplied by a staff provider such as an employment agency, are classed as externally provided workers.
You can:
- claim 100% of the relevant payments, if your company and the staff provider are connected
- claim 65% of the relevant payments made to a staff provider, which is not connected to your company, if they supply externally provided workers for the project
Staff costs
For staff working directly on the R&D project, you can claim for the following costs, as long as they relate to R&D:
- bonuses
- salaries
- wages
- pension fund contributions
- secondary Class 1 National Insurance contributions paid by the company
In specific circumstances you may also claim for an element of administrative or support staff who work to directly support a project, for example:
- human resources used to recruit a specific person to work on the project
- specialist cleaning staff
These are known as qualifying indirect activities.
The following are some examples of staff costs that you cannot claim for:
- redundancy payments
- staff costs for clerical or maintenance work that would have been done anyway, like managing payroll
Software
You can claim for software licence fees for R&D and a reasonable share of the costs for software partly used in your R&D activities.
Subcontractor costs
Subcontracted expenditure cannot be claimed unless it’s directly undertaken by:
- a qualifying body, for example a charity, higher education institute, scientific research organisation or health service body
- an individual
- a firm where each member is an individual
Examples of costs that do not qualify
The following are other examples of costs that you cannot claim for:
- the production and distribution of goods and services
- capital expenditure
- the cost of land
- the cost of patents and trademarks
- rent or rates
Calculate the expenditure credit
Follow these steps to calculate the expenditure credit.
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Work out the costs that are directly attributable to R&D.
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Reduce any relevant subcontractor or external staff provider payments to 65% of the original cost.
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Add all costs together.
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Multiply the figure by the expenditure credit rate to get the expenditure credit.
Before you claim
You must follow these steps before you claim the expenditure credit, or your claim may not be valid.
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For accounting periods beginning on or after 1 April 2023, check if you need to submit a claim notification form to notify HMRC in advance of your claim. Find out what you need to provide when you tell HMRC that you’re planning to claim R&D tax relief.
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From 8 August 2023 you must submit an additional information form to support your claim. Find out how to send the information and what to provide when you submit detailed information before you claim R&D tax relief.
How to claim
Claim using the Company Tax Return and:
- show the expenditure credit as taxable income in your profit and loss account, or by adding it to your profit in the single iXBRL computations file
- put an ‘X’ in box 656 to tell us that you’ve submitted the claim notification form
- put an ‘X’ in box 657 to tell us that you’ve submitted the additional information form
- include your bank details so that HMRC can make the payment
Complete the supplementary form CT600L.
Guidance is available to help you complete your Company Tax Return.
If your tax relief claim covers more than 12 months, submit a separate claim for each accounting period.
You can make a claim for tax relief up to 2 years after the end of the accounting period it relates to.
Check the ‘Before you claim’ section to make sure that your tax relief claim will be valid.
How to use the expenditure credit
You must follow these steps to use the expenditure credit before the final amount is paid to your company.
Step 1
Use the credit to settle your Corporation Tax liability for the accounting period. If the credit means you’re due a repayment for Corporation Tax that has already been paid, the interest will be calculated on a last in, first out basis.
If there is any expenditure credit left after settling your Corporation Tax liability go to step 2.
If there is no expenditure credit left, you do not need to follow step 2 to step 7.
Step 2
Compare the amount of expenditure credit brought forward from step 1 with the net amount of expenditure credit you’ve claimed. The lower of the 2 figures is carried down to step 3.
If the expenditure credit brought forward exceeds the net amount, the excess may be either surrendered to another group company to meet a Corporation Tax liability which it owes to HMRC, or carried forward to discharge the company’s Corporation Tax liability in future periods.
The net amount of expenditure credit is the figure you’ve claimed minus Corporation Tax at the main rate.
Step 3
Compare the expenditure credit brought forward from step 2 with your company’s total expenditure on R&D workers’ PAYE and National Insurance contributions. The lower of the 2 figures is carried down to step 4.
If the expenditure credit brought forward exceeds the total spent on R&D workers PAYE and National Insurance contributions, the excess amount is carried forward to future periods.
Step 4
You must use the remaining amount to pay any outstanding Corporation Tax liabilities for any accounting periods.
Step 5
You can surrender the credit wholly or partly to any group member. The amount surrendered can only be used to discharge a Corporation Tax liability of that group member.
Step 6
You must use the expenditure credit to discharge any other company liabilities, like VAT or liabilities under a contract settlement.
Step 7
The final amount is paid to your company.
Last updated 21 July 2023 + show all updates
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The 'Staff costs' section has been updated to include the treatment of bonuses and clarify that in some specific circumstances, you can claim for an element of administrative or support staff if they relate to an R&D project. Additional information has been added in step 2 of 'How to use the expenditure credit'. The information on when you must submit an additional information form has been updated from '1 August 2023' to '8 August 2023', and the text regarding voluntary submission of the additional information form before the mandatory date has been removed in step 2 of section 'Before you claim'.
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More information has been added about R&D expenditure credit (RDEC). How to calculate the expenditure credit, how to claim and how to use the expenditure credit have been updated. New sections have been added about expenditure credit rates, how to check what expenditure qualifies for expenditure credit, and what you need to do before you claim the expenditure credit for accounting periods beginning on or after 1 April 2023 and for claims from 1 August 2023.
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The 'Overview' section has been updated with information about when R&D expenditure credit can be claimed and to clarify what tax liabilities can be discharged with the credit.
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The email address in the 'When you cannot use the online service' section has been updated.
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The Research and Development Expenditure Credit rate changed from 12% to 13% on expenditure incurred on or after 1 April 2020.
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The Research and Development Expenditure Credit rate changed from 12% to 13%.
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Page has been updated with information about your expenditure when working out Research and Development Expenditure Credit
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You can now send supporting information for your RDEC claim using an online service - a link to the service and details of what you'll need has been added to this guidance.
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The Research and Development Expenditure Credit changed from 11% to 12% on 1 January 2018.
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First published.