How To

June 23, 2020

How to get the most out of R&D tax credits

Easy tips and tricks to help UK startups gain more from their research and development work.

Mark Smith

5 min read

Credit: Roman Fox, Unsplash

It may feel like a while ago now, but the UK’s budget in March revealed just how much the government sees research and development (R&D) activity as an economic stimulus. With help of innovation incentives, the UK’s aim of increasing R&D investment is slowly working, and spending is gradually ticking up. 

Coronavirus has not dented the government's commitment toward driving innovation in the UK. While the Future Fund, the £250m convertible loan scheme to support high-growth businesses, has grabbed the headlines, the government has in fact channelled far more funding (£750m) to Innovate UK to support R&D-focused small businesses. 

Applications for this kind of incentive scheme can seem daunting for SMEs, but — crisis or no crisis — they are well worth investigating considering the cash flow benefits they can bring. 


Here are several straightforward tricks to bear in mind when looking into the schemes.

R&D tax credits vs grants

R&D tax credits are generally a more powerful funding tool than grants, particularly now when so many companies face cash flow problems, because they can be applied for retrospectively. 

Grants, on the other hand, have to be applied for before a project begins, making them less valuable in the current crisis compared to tax credits — although they can provide more capital. Grant applications are also more complex, the funding being less certain and is for a predetermined amount. That said, it may be worth a look at the different grants available, which range from the open programme, which is sector agnostic, to sector specific grants such as the Energy Entrepreneurs Fund, Biomedical Catalyst Grant or the Emerging and Enabling Technologies Grant

In contrast, R&D tax credits are volume-based, meaning the more a business does, the more credit it gets back. That’s working out nicely for businesses; the average amount claimed by small- and medium-sized enterprises has doubled over the past five years, going from £31,413 in 2013/14 to £64,562 in 2017/18.

R&D tax credits are volume-based, meaning the more a business does, the more credit it gets back.

Knowledge is power

Despite the latest figures from HMRC showing a 22% rise in claims from 2015/2016 to 2016/2017, businesses have a long way to go until they are making full use of R&D credits. It comes down to a lack of understanding.

Businesses need to familiarise themselves with application processes to ensure they are getting all the credit they are due in the most efficient way possible. A surprising number of businesses fail to even put their bank details on their application, which can cause delays of over a month.

Similarly, businesses must be vigilant they are applying for the right scheme. Small startups often have a larger company as its majority shareholder. This can affect whether HMRC sees the business as an SME or a subsidiary of the large company and may lead to a rejected claim, wasting time and again causing a delay. You can find out which scheme is right for you here, as well as the different application processes for each scheme.

If you employ engineers, scientists or technology professionals, you might be due credit.

In fairness, application criteria can be hard to decipher. There is a quick way to determine whether you might be due credit: R&D activity is done by people and can therefore be tied to job roles. If you employ engineers, scientists or technology professionals, you might be due credit. Whereas, if you employ chefs and front of house staff, probably not. 

Watertight application processes

Taking things one step further, there are several things companies can do to ensure they maximise returns. 

Companies must ensure they account for everything that qualifies. The breadth of activity that they can apply for is often underestimated and there is often too narrow a focus on the most technical aspects of a project. Qualifying activity encompasses everything which contributes to the overall aim of the project, including routine administrative and planning tasks as long as they were required to facilitate the core project. In most cases, applications should factor in a greater proportion of the core team’s time and include other employees who may have contributed even if not part of the technical R&D team. 

Applications should include [the work of] employees who may have contributed even if not part of the technical R&D team.

Then there is timing. Many businesses currently submit their R&D claim up to 12 months after the year’s end, which is much later than it could be. Applications can involve hundreds of thousands of pounds, which can make a big difference to a small business.


Indeed, SMEs are often stretched for resources and administration such as tax returns can understandably fall down the agenda, but the process can be streamlined with simple planning. HMRC generally processes applications in 30 days so, by lining up the relevant documents as the year’s end approaches, organisations can secure credit almost a year earlier. 

Ultimately, R&D tax credits provide a vital cash injection in the right circumstances and can be transformative to a company’s growth ambitions. By understanding the criteria, looking at a project holistically and planning effectively, businesses can maximise the benefits they extract from their claims and can improve overall business performance.