R&D Tax Credits: Common Misconceptions and the Claims You Didn’t Know You Could Make

If you’re confused about your R&D tax claim, you’re not alone. R&D tax credits are one of the UK’s most valuable incentives for innovative businesses, yet many eligible SMEs avoid claiming due to uncertainty around the rules.

Every year, billions of pounds in R&D tax relief are successfully claimed by UK businesses, helping them reinvest in innovation, people, and growth. However, despite the scale of the scheme, confusion remains around eligibility and qualifying activities.

Much of this uncertainty stems from common misconceptions. Many companies assume that unless they’re developing groundbreaking technology, they won’t qualify. In reality, R&D takes place across almost every sector and often involves improving existing products, processes, or systems.

To cut through the confusion, Oliver Mountford, Compliance Manager at our specialist tax partners Bonham & Brook, shares his insights into the most common misunderstandings businesses have about R&D tax claims and what really matters when making a successful submission.

Firstly, let’s take five minutes to get you up to speed with the details of the scheme, to make you feel more confident about moving forward with your R&D claim.

R&D tax credits are a form of financial incentive, intended to encourage scientific and technological innovation in the UK.

The scheme enables eligible SMEs to claim back a significant portion of their R&D outgoings in the form of a cash payment, a corporation tax reduction or a tax rebate. You can use them to get up to 26.97% of your R&D costs over the past two years.

You can claim for a range of things related to your innovation activities, such as:

• Staffing and salaries

• Consumables

• Software

• Data costs

• Cloud Computing

• Subcontractors

• Externally Provided Workers

• Light & heat

The scheme is aimed at SMEs, meaning hundreds of thousands of UK organisations are eligible to apply. Eligible businesses must:

• Be a limited company registered in the UK, with fewer than 500 employees and an annual turnover below €100 million (or a balance sheet below €86 million).
• Be involved in researching or developing new technology for a product or service – that isn’t copying another business, but involves genuine uncertainty of success.

Businesses in almost every industry can apply, as long as they meet the criteria from a technical and financial point of view.  

Through the claims you must also demonstrate:

• Competent knowledge of the baseline of the technology when you start a project.  

• How your project sought an advance in science or technology and aimed to achieve this advance.

• How you’ve had to overcome scientific or technological uncertainty.

• Why the uncertainty was not readily deducible by a professional in the field.

And remember, keep records of your R&D activities and costs at the earliest opportunity.  

The biggest misconception is that many people don’t realise that what they are doing is R&D. The popular belief is that R&D pertains to a machinist developing a new engine, or doing research in a lab. The companies we speak to are always surprised by what you can claim for.

Oliver Mountford, Compliance Manager at Bonham & Brook

“As long as your project seeks technological or scientific advancement, you may apply. It doesn’t need to be groundbreaking either; these can be appreciable improvements in process and efficiency to existing systems or products.”

What else? According to Oliver:

“Another misconception around R&D tax claims we encounter is that people often think they have to have paid corporation tax to claim it."

“Actually, the schemes do not have to be offset against any particular tax. If you have no outstanding liability (such as CT, PAYE or VAT), then you’ll receive a cash payment. This surprises a lot of people.”

So, what type of activities could be eligible? Here are some examples we’ve come across that you may not have considered:

• Food production: If you work in the food manufacturing (material science), it could be as simple as developing a new recipe combination that explores the interaction of compounds to produce improve shelf life and physical properties.

• Architecture: Many architects are not aware then can claim because they view improvements and problem solving to be core parts of what they do. But with so much of their work devoted to addressing technical uncertainties, it’s likely that significant parts of their projects would qualify.

We asked our specialist partners at Bonham & Brook if there were any particularly interesting claims he’s worked on?

“We have a wide range of clients, ranging from, hydrofoil development for a fleet of catamarans, to HEMA free nail polish, and Xero integration APIs.”

Once you’ve established that your company is eligible, the next step is deciding how to prepare your R&D tax claim.

In theory, you can submit a claim yourself. However, doing so requires a detailed understanding of UK tax legislation, HMRC guidance, relevant case law, and critically - how to identify, apportion, and evidence qualifying costs accurately.

In practice, self-prepared claims often raise red flags with HMRC. They commonly include ineligible expenditure or fail to reflect the technical nuances HMRC expects to see.  

By working with our specialist partners at Bonham & Brook, your claim is prepared by a dedicated Technical Consultant who aligns the project narrative precisely with HMRC’s criteria, alongside a Financial Consultant who ensures all costs are eligible, correctly apportioned, and fully evidenced.

Recent regulatory changes have increased the complexity of submitting a compliant claim:

Additional Information Form (AIF): Mandatory for all R&D claims submitted since 8 August 2023

Claim Notification Form (CNF): Required for many claims, including some businesses that have claimed previously, this must be handled with care to avoid invalidating a claim

These requirements have significantly raised the compliance bar and increased the risk of errors for businesses submitting claims without specialist support.

Some businesses hesitate to engage an advisor due to the perceived risk of HMRC scrutiny. This typically arises for two reasons:

Mandatory Random Enquiry Programme (MREP): A proportion of claims are selected at random for enquiry

SIC Code Targeting: HMRC is more likely to enquire into claims from businesses that are considered less R&D-intensive, e.g. restaurants or care homes.

This is precisely where a trusted advisor adds value. A professionally prepared claim stands a far greater chance of being defended successfully.

“If HMRC does challenge a claim, whether self-prepared or submitted by a general accountant, we will review the position free of charge and advise on the most appropriate next steps based on your circumstances.”

Getting a claim right can unlock valuable funding for your business. Getting it wrong can lead to delays, repayments, or penalties.

HMRC may impose penalties where claims are found to be careless or unsupported, particularly where non-reputable providers are involved. Bonham & Brook has a strong reputation with HMRC for continuously submitting robust, defensible claims that fully align with their latest guidance and compliance standards.

There are many advisors offering to help with R&D claims, but innovation funding works best when grants and tax relief are properly aligned and delivered with rigour.

We partnered with Bonham & Brook as our exclusive specialist tax-advisory partner because they excel in helping clients maximise financial incentives, reduce costs & reinvest in innovation; with compliance at the core of everything they do.

With deep expertise across Innovation, Energy Relief, Property Taxes, and Compliance, their in-house sector specialists and proven methodology have earned the trust of hundreds of companies across the UK.  

Their compliance team is led by two former HRMC inspectors, enabling Bonham & Brook to ensure claims are robust, defensible, and in line with HMRC expectations.

The result?

• A stronger, more resilient R&D claim

• Minimal disruption to internal teams

• 98% success rate in defending enquiries