Check if you’re eligible and what you can claim

A guide to R&D tax relief, Patent Box relief and innovation funding grants

R&D tax relief, the Patent Box scheme

R&D tax relief, the Patent Box scheme and innovation funding grants are all designed to help set you on a cycle of innovation and IP exploitation so that you and the country can grow and prosper.

You may believe that you don’t carry out R&D or create innovations – you simply solve problems in your business as they arise. Yet there are plenty of activities SMEs carry out each year that qualify for tax relief or further funding. Or you may have put it off as it seems too complicated or time-consuming to bother.

Whatever the reason, you could be losing out on non-repayable funding that the government wants you to claim. Doing so helps you innovate and achieve their grand ambition for the UK to become the most innovative country in the world.

We’ve put together this guide to help you see what activities are eligible and how much you could claim.

0%
of eligible SMEs aren’t claiming R&D tax relief
0%
of small SMEs carried out eligible R&D projects in the last 3 years
£0
Our average first-year claim
0%
Just 8% of businesses have used a Growth Hub.

Source: The UK Longitudinal Small Business Survey: SME Employers, UK- 2019

R&D tax relief

R&D tax relief is the government’s generous cash incentive for companies who have attempted to create new or improved products, processes, devices, materials or services. You can therefore claim even if your R&D activity is unsuccessful, so long as it qualifies.

33%

The returns can be very generous – up to 33% of your qualifying project costs may be returned in cash.

What qualifies for R&D?

Your project must seek an advance in a field, science or technology, by resolving scientific or technological uncertainties.

It’s not enough to create an advance for your company alone. Eligible examples include:

  • Research projects that seek new knowledge or capability for your field.

  • Developing new products, devices, materials, processes or services which provide an advance in overall knowledge capability.

  • Making appreciable improvements to existing products, etc, through technological change.

  • Duplicating an existing product, etc, in a new or appreciably improved way.

Sector-specific examples of potentially qualifying activities

There are plenty of instances in which you may unwittingly be carrying out qualifying R&D activity whilst trying to find solutions to problems in your business.

Construction R&D Tax relief

Activities that commonly qualify for R&D tax relief

  • Overcoming challenging groundwork, environmental and substructural issues
  • Creating bespoke designs for one-off builds
  • Implementing green and sustainable  technology in newer, more efficient or effective ways 
  • Overcoming conservation/listed building or planning condition issues 
  • Using modular build elements
  • Making properties disabled friendly
  • Maximising space in a project
  • Overcoming site services, parking and transport issues
  • Adapting to meet new health and safety or regulatory requirements
Engineering R&D Tax relief

Activities that commonly qualify for R&D tax relief

  • Developing new/improved products 
  • Bespoke design and development of systems and products (e.g. using CAD)
  • Producing 3D solid objects prototypes and modelling 
  • Increasing ease of operation or suitability of products
  • Developing computer models
  • Integrating new systems and materials to improve product performance
  • Designing, constructing, and testing product prototypes
  • Duplicating existing products in new or improved ways
Food and Drink R&D Tax relief

Activities that commonly qualify for R&D tax relief

  • Improving the nutritional value within food content
  • Developing ingredients or food formulas that are both new and sustainable
  • Mitigating allergies such as dairy and gluten whilst maintaining taste
  • Improving food handling e.g. so it’s  faster, healthier and safer
  • Adapting ready meals so they’re healthier e.g. less preservatives, salt or fat
  • Improving shelf life through processing, storage temperature and packaging variations
  • Developing more efficient ways to minimise contamination, waste and spoilage of products
  • Improving a food’s taste, texture and consistency 
  • Scaling up sample batches in a kitchen test environment to full production speed and quantity
Farming & Agriculture R&D Tax relief

Activities that commonly qualify for R&D tax relief

  • Attempts to improve pest and weed control methods
  • Finding ways of adapting to atmospheric conditions e.g. silage wrap
  • Adapting existing machinery 
  • Developing new machinery and components
  • Soil management techniques to maximise yields 
  • Using smart irrigation technology
  • Reducing and/or reusing waste products e.g. bio-fuels
  • Developing feed supplements to improve livestock production and reproduction
  • Introducing or using satellite technology, sensors and drones
  • New methods of growing crops e.g. vertical farming or hydroponics
Manufacturing R&D tax relief

Activities that commonly qualify for R&D tax relief

  • Developing new or improved products
  • Developing improved processes e.g. that enhance productivity, efficiency, speed etc
  • Duplicating existing products in new or improved ways
  • Designing and developing tooling and equipment
  • Using new materials to improve manufacturing
  • Increasing supply chain efficiencies
  • Designing and developing innovative manufacturing equipment
  • Improving efficiencies to meet regulatory requirements and increase overall performance
Automotive R&D tax relief

Activities that commonly qualify for R&D tax relief

  • Performance-enhancing design work e.g.  improving rpm, horsepower and fuel efficiency
  • Innovative engine rebuild and redesign projects
  • Reboring, machining or designing components
  • Developing engineering drawings and specifications
  • Performing CAD modelling
  • CNC machining
  • Designing and developing moulds, jigs, dies and fixtures
  • Improving metalwork, including casting, welding and grinding
  • Designing and developing new tools
  • Improving product quality
Printing & Packaging R&D tax relief

Activities that commonly qualify for R&D tax relief

  • Trialling or testing new materials or inks
  • Combining materials or inks in a novel way – e.g. printing on to a unique material.
  • Developing packaging with improved performance – e.g. safer handling of fragile materials, making materials more durable etc. 
  • Overcoming printing challenges e.g. temperature, pressure, wastage
  • Trialling new techniques to improve printing quality
  • Improving print efficiencies with colouring printing trials
  • Reducing wastage and hazardous substances through new processes.
  • Creating more sustainable packaging options without reducing quality
Energy R&D tax relief

Activities that commonly qualify for R&D tax relief

  • Performance-enhancing design work e.g.  improving rpm, horsepower and fuel efficiency
  • Innovative engine rebuild and redesign projects
  • Reboring, machining or designing components
  • Developing engineering drawings and specifications
  • Performing CAD modelling
  • CNC machining
  • Designing and developing moulds, jigs, dies and fixtures
  • Improving metalwork, including casting, welding and grinding
  • Designing and developing new tools
  • Improving product quality
Software R&D tax relief

Activities that commonly qualify for R&D tax relief

  • Experimenting with new technologies to create improved capability e.g. artificial intelligence, Internet of Things (IoT), AR/VR and more 
  • Attempting to extend the functionality of software programs or systems
  • Creating additional capabilities, such as new tools for software
  • Creating tools for new software deployments such as migration tools
  • Creating new software development environments or platforms
  • Novel software development techniques or processes
  • Developing/adapting software that runs with new computer hardware
  • Developing first-of-kind integrations
  • Creating methods for integrating hardware and software in new ways

How much can you claim for R&D tax relief?

How much you can claim depends on which R&D tax relief scheme your activity falls into. This depends on the size of your company and how your activity has been carried out or funded.

The SME scheme

Who it applies to

SMEs that have carried out their own R&D. SMEs must have a headcount of less than 500 and either:

  • Turnover of less than €100m; OR

  • Balance sheet total of less than €86m

What you can claim

  • You can claim between 19% and 33% tax relief for qualifying expenditure (which is “boosted” by 30%).

  • The effective mean average is 25-33%.

  • So for every £1,000 spent, you effectively receive between £250 to £330 back.

The RDEC Scheme

Who it applies to

  • Large companies

  • SMEs carrying out R&D on behalf of large companies

  • SMEs whose R&D has been grant-funded or subsidised

What you can claim

  • Receive an effective cash benefit of 10.53% on all qualifying expenditure (13% relief minus 19% corporation tax).

  • So for every £1,000 spent, you effectively receive £105.30 back.

What counts as qualifying expenditure?

Staffing costs

Gross salary, employers’ NI contribution, employers’ pension contribution, reimbursed expenses, bonuses (but not dividends or BIK).

Externally provided workers

You can claim for externally provided workers such as agency staff or employees of a fellow group company. This is restricted to 65% of expenditure where the EPW is not a connected party.

Subcontractors

You can claim 100% relief for connected subcontractors but it’s restricted to 65% for unconnected subcontractors. Payments to Ltd company subcontractors do not qualify under the RDEC scheme.

Software costs

Licences and purchase costs relating to software which facilitates R&D.

Consumables

Materials or components which are transformed or consumed in R&D activity.

Volunteers

Payments to clinical trial volunteers.

Patent Box Tax Relief

Patent Box Tax Relief

The Patent Box is a regime that allows you to claim a reduced 10% corporation tax on any profit you make for patented inventions – even if they form a small part of a larger product. The relief can provide you with extra cash flow for 20 years.

What patents qualify?

Any patents you’ve registered at any time are covered but they must have been granted by the:

  • UK Intellectual Property Office

  • European Patent Office

  • Other EEA states with similar patent criteria to the UK

Can you claim?

You can claim if you:

  • Are the legal owner (This can include patents developed under a partnership, joint venture or cost-sharing agreement.)

  • Hold an exclusive licence to commercially exploit a patent (even if it’s restricted to particular fields or territories).

  • Have performed a significant activity to develop the patented invention or its application. (This can be before or after it was registered.)

What qualifies as income?

The relief covers any income you make, whether that’s in the UK or worldwide. You can claim for income generated in the following ways:

  • Sale of patented items or those that incorporate a patent

  • License fees

  • Proceeds from the sale of patents

  • Compensation for infringements

Innovation Grants

Innovation grants are effectively competitions that you can apply for to help fund your R&D or get it to market. They run throughout the year and we will always explore whether you may meet the criteria. (Although, as it’s a competition, whether you are successful depends in part on how strong you are compared with the other applicants.)

Innovation Grants

There can be significant differences between funding programmes but most seek to support project concepts that:

  • Address an unmet need

  • Deliver a disruptive or breakthrough new solution

  • Are enabled by novel science and technology

  • Have global market potential

In addition to the above, many funding calls also have additional specific criteria, such as:

  • A market, challenge or technology focus

  • Open only to certain types of organisation

  • Open to projects that start or finish at a specific development stage (readiness level, etc).

If you want to check if you qualify for tax relief or funding for your innovation projects, we’re happy to help