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Research and Development tax incentives

To encourage innovation the government has been offering generous tax reliefs for companies engaged in research and development (R&D) for several years now. In the 2016 Autumn Statement it was it was announced that spending from the National Productivity Investment Fund is forecast to increase from £425 million in 2017/2018 to £2 billion in 2020/2021.

Often an assumption is made that only companies such as scientific or medical research companies are eligible. However, these tax incentives in fact potentially apply to a very broad range of activities and your company may well qualify.

Essentially, if your company is engaged in projects which seek to achieve an advance of some sort in overall knowledge or capability in a certain field of science or technology, then you could be classed as being engaged in R&D activity. Additionally you do have to be able to demonstrate that the advancement was not readily deducible by any competent professional in the field. In practical terms, a broad range of activities could be included. Some examples are:
  • Developing a new product
  • Improving an existing product
  • Creating a new process
  • Creating certain computer software


The types of costs that can qualify for R&D tax incentives include:
  • staff costs for employees involved in the R&D, apportioned based on their time spent on the qualifying activities
  • costs of subcontractors or externally provided workers assisting the R&D (usually restricted to 65%)
  • software used in the R&D, apportioned between qualifying and non-qualifying activities
  • costs relating to items consumed in the qualifying activities, such as materials used in creating a prototype or testing a process. Fuel, power and water may also qualify.


It may well be that your company is already engaged in some of these activities and you could qualify for this generous incentive. Small and medium sized companies are eligible to claim an additional 130% tax relief on all qualifying expenditure. For example:
  • company A spends £50,000 developing better packaging to maintain the quality of their product.
  • R&D tax relief will allow an additional £65,000 to be deducted from the company’s profit for tax purposes
  • this means the overall reduction in company A’s tax bill as a result of the R& D expenditure is £23,000 (based on tax rates to 31 March 2017)


Even if you are not yet making a profit you can benefit from the relief too, as you are able to claim a tax credit of 14.5% of the enhanced expenditure on R&D projects.

Lovewell Blake has built up a considerable amount of experience since the incentives were first introduced by the UK government at the turn of the millennium, and we have helped companies of many different sizes, across multiple sectors successfully claim tax relief on their R&D expenditure. If you think you have been engaged in R&D activity and would like further information on the incentives, please call one of our tax team who will be happy to help you.

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Research and Development tax incentives
Research and Development tax incentives
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