What can I claim?

The definition of R&D for tax purposes is based on activities that are treated as R&D under normal accounting practice. The meaning is explained by new 'Guidelines on the Meaning of R&D for Tax Purposes' issued by the Department of Trade and Industry.

R&D tax credits mean that companies can now deduct 150%, rather than 100%, of any qualifying R&D expenditure when they calculate their taxable profits. Companies which do not make a profit can surrender their qualifying R&D losses and claim in return a cash payment of £24 for every £100 of qualifying R&D expenditure.

Companies can claim R&D tax credits if they are small or medium-sized and spend at least £10,000 in the year on qualifying R&D. Companies that have not yet started trading can also claim R&D tax credits.

Companies can claim R&D tax credits on their costs of employing staff to carry out the R&D, consumable stores used in the R&D, and certain costs of subcontracting R&D.

Costs do not qualify for R&D tax credits if

You can surrender your trading losses in return for a cash payment. The surrenderable loss is limited to the amount of your qualifying R&D expenditure. Also, the payment cannot exceed the total amount of PAYE and Class 1 national insurance contributions paid by the company for the period.

Broadly speaking, a company is small or medium-sized for R&D tax credits if, together with any company it controls by holding 25% or more of its capital or voting rights, it has:

You can claim the R&D tax credit and the R&D payment in your company's tax return.