R&D tax relief worked examples

The value of an R&D tax relief claim depends on two things: how much qualifying expenditure the company has, and what tax position it is in when the claim lands. This page is the index to a library of worked examples, each costing one claim from the inputs through to the net pounds, using the rates in force for accounting periods beginning on or after 1 April 2024. Every company in the library is illustrative and the figures are deliberately round. Each is a complete R&D tax credit claim example: the qualifying spend, the credit, the tax on the credit and what the company is left with, including the two that are left with far less than the headline rate suggests.

Six examples have a page of their own, with the arithmetic broken down step by step, the statutory reference for each step and the fields the claim would populate on the Additional Information Form. The seventh is below: a project that does not qualify, and therefore produces no claim at all.

The examples at a glance

A profitable company under the merged scheme

An illustrative structural engineering company with £400,000 of qualifying expenditure and taxable profits comfortably above £250,000, so corporation tax at the 25% main rate. The merged R&D Expenditure Credit pays 20% of qualifying expenditure, and the credit is itself taxable income: £80,000 gross, £20,000 of corporation tax on it, £60,000 net, or 15p per £1.

The full page follows that claim from cost capture through the 65% restriction on contractor and externally provided worker payments, down the seven payment steps, into the CT600 and CT600L boxes and out again as a reduced tax bill. It also settles a question the headline arithmetic hides: for a profitable company whose tax liability exceeds the credit, the notional tax deduction never engages at all, because the credit is absorbed in full at step 1. Read a profitable company under the merged scheme.

A loss-making R&D-intensive SME under ERIS

An illustrative pre-revenue biotech with £1,120,000 of qualifying expenditure, connected throughout the period with a holding company. Its intensity is worked three ways on the page, because the answer changes depending on whether the connected company and the intra-group management charge are dealt with correctly: 36.1% on the company’s own figures, 31.3% on aggregated figures with the recharge left in the total, and 33.5% once the recharge is stripped out as the statute requires.

Enhanced R&D Intensive Support then gives an additional 86% deduction and a payable credit of 14.5% of the surrenderable loss, which is itself capped at 186% of qualifying expenditure: £302,064 in cash, 26.97p per £1, and not taxable. The page works the surrenderable-loss ceiling, the choice between cash now at 14.5p and relief later at the corporation tax rate, and both limbs of the grace period. Read a loss-making R&D-intensive SME under ERIS.

A grant-funded programme

An illustrative thermal storage developer with a £450,000 Innovate UK grant and £520,000 of qualifying expenditure. Under the current schemes the grant changes nothing: the subsidised expenditure rules were not carried forward, so relief is worked out on the full qualifying expenditure and the claim produces £84,240 in cash, 16.2p per £1.

The page also runs the same company’s earlier accounting period, which began before 1 April 2024 and so falls under the old schemes, to show what the grant used to cost: £57,000 through old RDEC against the £70,680 the old SME route would have given, a difference of £13,680. That period remains within the claim window. Most published advice on this subject still describes the rules that produced the second figure. Read a grant-funded programme under the current schemes, or the full position in grant funding and R&D tax relief.

A subcontracted project, costed from both sides

One illustrative defence supply chain, three contracts and two claimants. Who claims turns on the statutory test rather than on who paid the invoice: whether it is reasonable to assume, having regard to the terms of the contract and any surrounding circumstances, that the customer intended or contemplated when entering into the contract that research and development of that sort would be undertaken.

On one contract the customer claims, including 65% of the £400,000 it paid, giving it £470,000 of qualifying expenditure and £70,500 net. On another the contractor claims in its own right, on its own costs, as it does on a third contract with a customer outside the charge to UK tax: £320,000 of qualifying expenditure and £51,840 in cash. The same pound of contractor spend generates relief once, on one side of the contract only, and £275,000 of the contractor’s own costs drop out because the right to claim sits with the customer. Read a subcontracted project, costed from both sides, and contracted-out R&D: who claims? for the rules behind it.

A claim the PAYE cap bites

An illustrative augmented reality software company with £720,000 of qualifying expenditure, £24,000 of relevant PAYE and National Insurance contributions, and most of its development contracted out. The cap is £20,000 plus 300% of relevant PAYE and National Insurance contributions, so £92,000, against an ERIS credit that would otherwise be £194,184.

This is the example where the arithmetic is the smaller part of the problem. A claim for a credit above the cap is invalid rather than restricted, and the loss written off is measured by the claim rather than by the cash, so an ERIS claim has to be sized to the cap before it is filed or the surplus loss goes for nothing. The page also runs the merged scheme alternative on identical figures, where the restricted amount carries forward instead of disappearing, and on these numbers that route leaves the company better off on every line. Read a claim the PAYE cap bites, or the PAYE cap explained.

A claim with overseas costs excluded

An illustrative diagnostics company with three tranches of overseas spend, of which one survives. An overseas development team engaged for price and externally provided workers paid outside UK payroll both fail, taking £156,000 of qualifying expenditure out of the claim. An overseas clinical investigation that a regulator requires to be run in its own territory meets the qualifying overseas expenditure conditions and stays in at 65%.

What is left is £300,000 of qualifying expenditure and £44,100 of net benefit, at the 26.5% marginal rate that applies where augmented profits fall between £50,000 and £250,000. That is 14.7p per £1, the lowest figure the merged scheme produces. Read a claim with overseas costs excluded, or overseas R&D costs under the merged scheme.

The project that produces no claim

An illustrative manufacturer replaces its production planning system, at a cost of £180,000 in staff time and consultants. The finance director asks what it is worth as an R&D claim.

Nothing.

The work was configuration and data migration: the platform, the interfaces and the scheduling logic were all used as the vendor documents them, assembled to an established pattern. However hard the work was, a competent professional in the field could have worked out how to do it from existing knowledge, so there was no scientific or technological uncertainty to resolve. Had the integration itself been the problem, had the field been unable to predict whether those systems would behave as a whole, the answer might have been different, and that is the question we ask first. There is no advance in the field’s knowledge or capability either: the company learned something new, but the field did not.

Both tests come from the definition of qualifying R&D, and neither is met by difficulty, expense or commercial novelty.

• Total programme cost: £180,000
• Qualifying expenditure: nil
• Claim value: nil

That answer is worth as much as the six above it. A claim built on this work would be found in a compliance check, and HMRC checked around one in six R&D claims in 2023-24, its latest published figure. Some of the most useful work we do on a first engagement is telling a company which of its projects to leave out.

What do these examples not settle?

Each one starts from a figure for qualifying expenditure, which is where the real work sits. Which projects pass the qualifying test, which costs fall inside the qualifying categories, how staff time is apportioned, and which party to a contract is entitled to claim: those questions decide the number that goes into the 20% or the 186%. The arithmetic in this library is the easy part.

For an estimate on your own figures, use the claim value calculator, or the ERIS intensity calculator to test the 30% condition across connected companies. Neither models the PAYE cap, which is why one of these examples is about nothing else. For periods beginning before 1 April 2024, the rates were different and are set out in rates by year.

Talk it through with a chartered adviser

Worked examples show how the relief is calculated. They do not tell you what your own claim is worth, because that depends on judgements about your projects and costs that no table can make for you. LimestoneGrey is a firm of Chartered Tax Advisers and Chartered Accountants, regulated by ICAEW, specialising in R&D tax relief. Every claim we prepare is signed off by a chartered adviser before it reaches HMRC, and enquiry support is included as standard.

If you want a considered view on what your position is worth, get in touch, or start with the full R&D tax relief guide.

Sources

• Merged scheme and ERIS guidance — the 20% merged credit, the ERIS 186% deduction and 14.5% payable credit, the 30% intensity condition and the PAYE cap.
• Corporation Tax rates and allowances — the 25% main rate, the 19% small profits rate, and marginal relief between the £50,000 lower limit and the £250,000 upper limit at a standard fraction of 3/200.
• CTA 2009 s1042G — the relevant percentage: 20%, other than for a ring fence trade.
• CTA 2009 s1055 — the Chapter 2 surrenderable loss: the unrelieved trading loss, or 186% of the qualifying Chapter 2 expenditure if less.
• CTA 2009 s1058 — subsection (1), the ERIS credit at the lesser of 14.5% of the surrenderable loss and the PAYE cap.
• CIRD140000: PAYE cap — the £20,000 plus 300% cap, and the difference in consequence between the two schemes.
• CTA 2009 s1042J — the amount restricted by the cap added to the credit for the next accounting period.
• DSIT Guidelines: meaning of R&D for tax purposes — the advance, uncertainty and competent professional tests behind the project that produces no claim.

CIRD140000 is indexed on our CIRD reference index, with HMRC’s own title for it, a line on what it says and the date HMRC last revised it.