■ Claimed costs for overseas activities are closely vetted. Cost advantages or staff unavailability alone will not justify foreign- based R&D.
■ Companies must identify a senior offi cer endorsing the claim and any agent involved in preparing it, deterring unscrupulous practices.
■ HMRC has also expanded its specialist R&D compliance teams, opened more enquiries, and introduced new reporting require- ments. Failure to meet these standards can result in extended investigations, penalties, or clawback of relief.
■ Conducting lab-based experiments or fi eld trials to explore how a material, system or piece of equipment behaves under specifi c conditions.
■ What matters is that you are pushing the boundaries of your sector’s knowledge, not just applying standard methods already known within your industry. This involves identifying the industry baseline and then measuring how your work advances it, demonstrating a tangible and measurable innovation.
What are the rates? Since April 2024, there has been a continued move towards a more streamlined approach to R&D tax relief, with a merged scheme combining the small and medium sized enterprise (SME) scheme and Research and Development Expenditure Credit (RDEC) for large companies, off ering a maximum benefi t of 16.2%. Previously, there were two schemes. In limited circumstances, such as R&D- intensive support, this benefit can be increased to up to 27% for SMEs. For a typical SME spending £100,000 on R&D, this could mean
up to £16,200 in tax credits (grant funding). For intensive activities – where 40% of total company expenditure is on qualifying R&D – this amount could rise to £27,000. Although SMEs and larger companies still face diff erent rules in
some aspects, both are under increasing scrutiny to ensure claims refl ect genuine scientifi c or technological innovation.
Patent Box complement The Patent Box regime offers a 10% Corporation Tax rate on profi ts derived from patented inventions. By combining properly structured R&D projects with patent protection, companies can signifi cantly reduce their overall tax burden – though only if they meet the strict qualifi cation rules around patent ownership and genuine development work. Many businesses with patents fail to claim the tax relief when
patents are incorporated into a product that is sold or used in a qualifying process, such as manufacturing or providing a service.
Heightened anti-fraud measures HMRC’s Mandatory Random Enquiry Programme (MREP) data reveals that a signifi cant proportion of SME claims contain errors or fraud, prompting tighter compliance checks: ■ Enhanced disclosure forms and digital submissions make it easier for HMRC to scrutinise claims, ensuring relief is focused on genuine R&D. The Additional Information Form (AIF), introduced in August 2023, supports this eff ort.
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Working with a trusted adviser T e complexity and stricter oversight heighten the risks of errors, missed opportunities, or, worse, being caught in a fraud investigation. Collaborating with a qualifi ed and transparent adviser can: ■ Clarify whether overseas work meets HMRC’s exception tests. ■ Ensure documentation aligns with the latest guidance, particu- larly for contracting-out arrangements.
■ Safeguard against misinterpretation of new rules, thus minimis- ing exposure to penalties.
Benefi ts still remain Although the UK’s R&D landscape is more heavily regulated, significant tax benefits remain for innovative businesses that stay compliant. Recent overseas restrictions, revised contracting- out provisions, and stricter anti-fraud measures refl ect HMRC’s commitment to channelling relief to authentic R&D projects. At the same time, the Patent Box can still reduce Corporation
Tax on profi ts from patented advances, further rewarding long- term innovation. By working closely with informed advisers and maintaining rigorous project records, companies can protect their claims, mitigate fraud risks, and fully leverage the UK’s generous R&D incentives. Cottons Group has a newly appointed team of R&D experts
dedicated to providing tailored support, ensuring claims are handled with great care and specialised expertise. Get in touch today to see how we can help your business maximise its R&D opportunities.
Find out more about Cottons Group at
www.cottonsgroup.com
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