R&D tax credit myths to look out for

In this guide, we address some of the most common myths we hear from SMEs and finance leaders. Understanding the facts will help you approach your R&D claim with confidence — and avoid leaving value on the table.

Myth 1: “We don’t have an R&D department, so we can’t claim.”‍

You don’t need a formal R&D department to carry out qualifying R&D. Innovation happens everywhere: on factory floors, in software teams, in engineering workshops, and across sectors from manufacturing to healthcare and clean energy.

HMRC defines R&D for tax purposes as work that seeks an advance in science or technology through the resolution of scientific or technological uncertainty. If your team is trying to create something that isn’t readily achievable or improve an existing solution in a way that isn’t straightforward, your work may qualify.

The essential requirements remain the same:

• You must be a UK limited company subject to Corporation Tax
• You must have incurred qualifying R&D expenditure
• Your project must meet HMRC’s definition of R&D

Myth 2: “Our business is too small to make an R&D claim.”

Size isn’t a barrier. The UK incentive supports companies at every stage, from early-stage start-ups to large enterprises.

There are now two routes for relief:

• SME scheme – historically the more generous scheme for companies with fewer than 500 staff and below the financial thresholds
• R&D Expenditure Credit (RDEC) – now the unified route for most companies under the merged scheme introduced in April 2024, with additional support for R&D-intensive SMEs

Even companies with only a few employees can and do successfully claim. What matters is whether your work meets HMRC’s criteria, not your headcount.

Myth 3: “Only successful projects qualify.”

Untrue. R&D tax relief is designed to encourage experimentation. Projects that fail, pivot, or are halted early can still contain qualifying R&D.

If you attempted to solve a scientific or technological uncertainty, even if the outcome wasn’t what you expected, your work may still be eligible.

Myth 4: “You can only claim for the current financial year.”

You have up to two years from the end of your accounting period to submit or amend an R&D claim. That means you can often claim for the two most recent financial years, provided you’re within HMRC’s amendment window.

Eligible expenditure can cover a broad range of costs, including:

• Direct R&D staff costs
• Externally provided workers
• Subcontracted R&D (subject to scheme rules)
• Software used directly in R&D
• Prototypes and testing
• Consumables such as materials, fuel and utilities

Once the two-year deadline passes, HMRC won’t accept late claims, so timing matters.

Myth 5: “Loss-making companies can’t claim.”

Loss-making companies can claim R&D tax relief and often receive a more substantial benefit. Under the current rules, qualified expenditure can generate:

• A payable credit for certain R&D-intensive SMEs
• An offset against future Corporation Tax
• A carry-back against earlier taxable profits

A specialist advisor can help you understand which route offers the best outcome based on your circumstances.

Myth 6: “There’s a minimum spend for R&D claims.”

There is no minimum spend to claim R&D tax relief today.

Earlier versions of the scheme included minimum thresholds, but these were removed over a decade ago. We regularly meet companies who assumed their project was “too small” — yet many still secure meaningful relief when the qualifying activities are correctly identified.

Myth 7: “You can’t claim if the R&D was subcontracted.”

Subcontracting doesn’t automatically exclude you from claiming. It depends on:

• Which scheme you fall under
• Who carried out the R&D work
• How the contractual relationship was structured

Under current rules, certain subcontracted and externally provided worker costs may qualify. For example, you can often claim up to 65% of relevant payments to third-party agencies, and additional rules apply if the work was completed by universities, research organisations or individuals.

If subcontracting forms part of your delivery model, it’s worth getting tailored advice — the detail matters.

Myth 8: “R&D tax credits only apply to brand-new products.”

Improvement work can also qualify. HMRC explicitly states that R&D may involve creating something new or improving something that already exists.

Eligibility typically comes down to whether your team faced scientific or technological uncertainties and had to investigate, design, test, or iterate to resolve them.

Strong claims clearly demonstrate:

• The advance being sought
• The uncertainties involved
• The approach taken to resolve them
• Why the solution wasn’t readily deducible

If your project pushed beyond standard practice for your field, some of the work may be eligible.

Myth 9: “The R&D claim process is too complicated.”

The submission itself is made through your Corporation Tax return. The complexity usually lies in identifying what qualifies and preparing a clear, accurate technical explanation supported by evidence, particularly as HMRC now places greater emphasis on contemporaneous record-keeping and robust documentation.

This is where specialist support adds value. Clear scoping, structured documentation and accurate categorisation of costs help ensure your claim is both compliant and defensible.

Final thoughts

R&D tax relief continues to play a central role in supporting UK innovation. Understanding what the scheme actually requires and separating myth from reality, helps businesses make informed decisions and avoid missing out on relief they may be entitled to.

If you’d like clarity on whether your work qualifies or how the rules apply to your company, we’re here to help. Book a free consultation today.