R&D Tax Credit Eligibility

Only a company chargeable to UK Corporation Tax can be entitled to the relief. That rules out sole traders, ordinary partnerships and LLPs claiming in their own right, although companies can carry out R&D as members of partnerships. It is the most common reason a genuinely innovative business cannot claim: the wrong legal wrapper, not the wrong work.

The expenditure has to relate to the company's trade. The activities have to fall to be accounted for as R&D under generally accepted accounting practice as well as meeting the guidelines definition, so the accounts and the claim have to tell the same story.

The expenditure must not be capital expenditure, and it must be allowable as a deduction in computing the profit of the period. It has to fall within the qualifying cost categories set out on the qualifying expenditure page. And the company has to make a valid claim, which since 2023 means the forms as well as the numbers.

A company has to be a going concern when it claims. HMRC's test is that the latest published accounts were prepared on a going concern basis, and that nothing in those accounts suggests that status depends on the company receiving R&D relief or tax credits.

That second limb catches companies that most need the money. If the accounts say the business is a going concern because an R&D credit is expected, the condition is not met. It is worth raising with whoever prepares the accounts before they are filed rather than after.

For accounting periods commencing after 31 March 2023 there is an exception: a company still counts as a going concern where the only reason the latest published accounts were not prepared on that basis was a relevant group transfer.

A company in administration or liquidation cannot make a claim, for claims made on or after 1 April 2012. And where a company ceases to be a going concern after claiming under section 1054 of the Corporation Tax Act 2009, the claim is treated as not having been made, although a credit already paid is unaffected.

Two disqualifications account for most refused claims that were not refused on the technical narrative. Expenditure is disqualified to the extent that it is subsidised, which is why grant funding on the same project has to be established before any computation rather than after it. A grant does not necessarily stop a claim, but it changes which expenditure is claimable and under which route.

The other is being contracted to carry out the R&D. For periods beginning on or after 1 April 2024 this became the central question rather than a side condition, because the right to claim contracted-out R&D moved to the company that decided on and planned the work. The rule is on the merged R&D scheme page, and it is the first thing to test on any claim that sits inside a supply chain.

Eligibility is not a single yes or no, because there is more than one route and the conditions differ. Periods beginning on or after 1 April 2024 go to the merged expenditure credit, or to Enhanced R&D Intensive Support for a loss-making SME at 30% R&D intensity. Earlier periods go to SME relief or RDEC.

A company can therefore be ineligible for one route and eligible for another in the same period, which is why the honest answer to "can we claim" usually starts with the accounting period dates. HMRC sets out the conditions in the Corporate Intangibles Research and Development Manual, and the British Business Bank publishes a plainer overview for first-time claimants.