R&D tax credits explained: making contract research and better decision making more accessible
For many businesses, research still feels expensive, slow or out of reach. At the same time, teams are being asked to make bigger decisions around product development, process improvement, energy use, automation, compliance and investment risk.
R&D tax credits matter because they make research-led work more affordable, especially when tied to a focused contract research project. HMRC statistics show there were 46,950 R&D tax relief claims in 2023-24, with over £7bn claimed.
Yet awareness remains uneven. Many businesses recognise the term but don’t understand what qualifies or how it applies to real technical challenges. That matters, because the scheme is designed to reward companies investing in genuine innovation.
Why this matters now
Businesses are under pressure to improve productivity, reduce waste, respond to demand and avoid costly mistakes. In sectors like manufacturing, engineering and energy, decisions often involve technical uncertainty.
That might include:
- whether a material performs as expected
- whether a process can be improved without affecting output
- whether automation will deliver ROI
- whether a lower-carbon solution is viable.
When this work meets HMRC criteria, R&D tax relief can reduce the effective cost. Under the merged scheme, the R&D expenditure credit is 20%, with a typical net benefit of around 15-16.2%.
What R&D tax credits actually are
R&D tax credits are a UK incentive for companies undertaking qualifying research and development. They reward businesses solving technical problems or developing new or improved products, processes or services.
The benefit can either reduce Corporation Tax or provide a payable credit. Importantly, this is not limited to lab-based research or major innovation projects. HMRC recognises qualifying work across applied fields such as engineering, manufacturing and software development.
What makes a project eligible
Two key criteria determine eligibility:
- the project must seek an advance in science or technology
- it must involve scientific or technological uncertainty.
Crucially, projects do not need to succeed. Failed work can still qualify if it aimed to resolve genuine uncertainty.
This makes R&D tax relief well suited to contract research, where businesses are often testing specific technical questions before committing further investment.
What costs can qualify
HMRC allows claims on several types of expenditure, including:
- staff salaries, NIC and pensions for those involved in R&D
- software used in the work
- materials and consumables
- some subcontractor and external worker costs
- cloud computing and data licence costs (where directly linked to R&D).
What this looks like in practice
Qualifying activity is often more common than businesses expect. Examples include:
- manufacturers prototyping components, testing materials or improving processes
- engineering firms solving design or system challenges
- energy and industrial businesses modelling new processes or assessing decarbonisation technologies
- software teams developing new algorithms or solving integration and scalability issues.
Why businesses miss out
Many businesses miss opportunities due to confusion or lack of confidence. Some assume they are too small, or that only breakthrough innovation qualifies. Others are unsure whether their work involves sufficient uncertainty or how to document it properly.
Recent changes have also made process and timing more important. Since April 2023, some companies must submit a claim notification form within six months of the end of their accounting period, alongside an additional information form.
This is why having the right partner matters. It’s not just about identifying eligibility – it’s about structuring projects correctly, capturing evidence and reducing risk.
Where we come in
Contract research can make the process more accessible.
A focused project helps businesses answer a real technical question while building a strong evidence base for an R&D claim. This might include feasibility studies, modelling, process analysis, materials testing or technical assessment.
Working with us allows you to:
- clearly define the problem
- carry out structured research
- build robust technical evidence.
The benefit is not only financial
While the financial benefit matters, the real value is better decision making. R&D tax credits make it easier to:
- test assumptions before committing investment
- reduce technical and commercial uncertainty
- build evidence for strategic decisions.
- invest in new processes or technologies
- progress a technical concept
- improve products or systems
- begin a research-led project now rather than delay.
If your business is solving a technical problem or working through uncertainty, there may be two opportunities.
The first is to answer the challenge through contract research. The second is to recover part of the cost through R&D tax relief.
Seen this way, R&D tax credits are not just a tax issue. They are part of making innovation and evidence-based decision making more achievable. Many businesses still assume the process is too complex or that they are not eligible. In reality, a well-scoped project and the right support can make it far more manageable.
Let’s work together
We work with businesses to understand challenges, shape research and make innovation more accessible. For organisations in technical sectors, that means moving forward with greater confidence, clearer evidence and a stronger route to value.
If your challenge is technical, uncertain and commercially important, it’s worth asking not just whether you need research support – but whether that work could also qualify for R&D tax relief.
Get in touch with us at business@tees.ac.uk.