Most founders don’t come to us asking whether their business does R&D. They come asking whether the thing they’re already doing – building a new feature, solving an integration problem nobody’s solved before, rewriting a system that kept breaking under load – counts. HMRC’s own starting point for that question is a short checklist of qualifying criteria, including an interactive tool for checking whether a project’s activities qualify. That question is usually the easy part. What’s harder to spot is the handful of process failures that can lose a business its entitlement to relief entirely, regardless of how strong the underlying work is.
Here are the warning signs worth checking for.
The deadline that can shut down a valid claim before it starts
The single most common way a genuinely qualifying business loses its R&D relief isn’t a disagreement with HMRC about the science – it’s a simple missed form. Since April 2023, any company claiming R&D relief for the first time, or returning to a claim after a gap of three or more years, must submit a claim notification form. The claim notification period runs from the first day of the relevant period of account to six months after it ends – for a standard 31 March year end, that’s a window opening on 1 April and closing on 30 September the same year. Miss that closing date and HMRC will not accept the claim for that period, however strong the technical case. A separate Additional Information Form is then required before the Company Tax Return goes in, but that’s a different deadline and doesn’t rescue a claim where the earlier notification was missed.
31 March remains the most common year end among UK companies, so that 30 September closing date applies to a larger cohort than any other single deadline in the R&D calendar. It catches companies out because it doesn’t feel urgent at the time: the accounts aren’t due yet, the claim itself doesn’t need to be finalised, but the right to make it can already have expired.
Loss-making, and assuming R&D relief doesn’t apply
A lot of early-stage software and product businesses rule themselves out of R&D relief on the (reasonable-sounding) assumption that it’s a tax break for profitable companies, and they’re not one yet. That assumption is wrong for exactly the businesses it affects most.
Loss-making SMEs where qualifying R&D spend makes up 30% or more of total expenditure can claim under enhanced R&D intensive support (ERIS) rather than the standard merged scheme. ERIS allows an additional 86% deduction on top of the normal 100%, and a payable credit worth up to 14.5% of the surrenderable loss – a combined cash benefit that can reach around 27% of qualifying spend. For a pre-revenue product team where development is most of the outgoings, that intensity threshold is often cleared without anyone having checked for it.
Who’s entitled to claim R&D when the work is contracted out
Since the rules changed for accounting periods beginning on or after 1 April 2024, entitlement to claim contracted-out R&D generally sits with the company that decided to undertake the work and bears the risk of it, rather than automatically with whoever carried it out. That distinction matters for any business working with an agency, a subcontractor, or a client relationship where it isn’t obvious on paper who’s “doing” the R&D – software development is one common example, but the same gap shows up wherever specialist work is commissioned out, from product design to engineering subcontracting.
In practice, this is where claims fall through the gap between two parties who each assume the other one is making it. A client commissioning bespoke work may not realise the entitlement could sit with them rather than their contractor; a contractor doing novel work for a client may not realise the reverse. Getting the contractual and factual position straight before the accounting period ends is far cheaper than untangling it afterwards.
Overseas developers and the costs that no longer qualify
For the same accounting periods, most payments to overseas contractors and externally provided workers stopped qualifying for relief. The test that determines whether a worker’s costs are eligible is whether they’re subject to UK PAYE and National Insurance – guidance HMRC sets out in its Corporate Intangibles Research and Development Manual – with apportionment required where only some of a team meets that test, and a narrow exemption where it would be genuinely unworkable to carry out the R&D in the UK. HMRC’s own guide to which costs you can claim is worth working through category by category rather than assuming a payroll or contractor bill qualifies wholesale.
This is a quiet source of overclaimed relief as much as underclaimed relief. A business that’s brought in overseas contractors or staff to fill a skills gap, without separating out who’s on UK payroll and who isn’t, can end up either missing costs it was entitled to include or including costs it wasn’t – both worth catching before a claim is submitted, not after.
Where this often shows up first: in the numbers themselves
Unclaimed R&D doesn’t usually announce itself. More often, it’s spotted the way an unclaimed expense in any set of accounts gets spotted – a development team sitting in the payroll figures, software costs capitalised under FRS 102 with nothing corresponding on the tax side, a project that was clearly substantial enough to matter but never made it into a claim. That’s less a failure of ambition than of translation: the accounts describe what was spent, not what the spending was for, and nobody at the business necessarily thought to connect the two.
If any of the above sounds like it could apply to your business – a first-time claim edging toward its six-month window, a loss-making year that might clear the R&D intensity threshold, a development arrangement where it isn’t clear who holds the entitlement, or a team that mixes UK and overseas developers – it’s worth having the conversation before the claim window closes rather than after. Get in touch with our R&D tax team to talk it through, or contact Taylor Rogers directly, below.