RD Tax Relief Eligibility: Which Projects and Costs Qualify in the UK?

Many UK technology businesses invest significant time and money in developing software, improving digital platforms and solving complex engineering problems. However, not every development activity qualifies for RD Tax relief.

Understanding the difference between routine development and qualifying research and development is essential before preparing a claim.

About Accounting UK works with technology-focused businesses exploring R&D tax relief opportunities. This guide explains the main eligibility principles, the types of projects that may qualify and the expenditure businesses should review.

What Makes a Project Eligible for RD Tax Relief?

For UK R&D tax purposes, a project generally needs to seek an advance in science or technology and involve scientific or technological uncertainty.

The advance may involve creating new knowledge or making an appreciable improvement to existing scientific or technological capabilities.

The project must also involve attempting to resolve uncertainty that a competent professional in the relevant field could not readily resolve using publicly available knowledge or established methods.

A product can be commercially new without qualifying for R&D tax relief. Equally, a project does not necessarily have to succeed to be eligible: qualifying work may still be relevant where the intended advance could not be achieved.

The assessment should focus on the underlying technical work rather than the project’s marketing description.

Examples of Potentially Qualifying RD Tax Projects

1. Complex Software Architecture

A software company is building a platform that must handle unusually high transaction volumes while meeting demanding latency and reliability requirements.

Existing architectures have not resolved the technical limitations. The engineering team investigates alternative designs, performs controlled testing and attempts to overcome the limitations.

This project may qualify if the work meets the R&D criteria and the uncertainty could not readily be resolved by a competent professional.

By contrast, configuring a standard cloud service or following established software design patterns will not normally qualify solely because the implementation is difficult.

2. Artificial Intelligence and Data Processing

An AI company is developing a new technical approach to a data-processing problem. Existing methods cannot achieve the required performance, and the team investigates alternative techniques through systematic experimentation.

The project may qualify if it seeks a technological advance and addresses genuine uncertainty.

Simply using an existing AI model, writing ordinary application code around it or connecting a commercial API does not automatically constitute qualifying R&D.

3. Cybersecurity Development

A technology company investigates a new approach to detecting sophisticated threats that existing techniques cannot adequately identify.

If the team must resolve technological uncertainties and attempts to achieve an advance in cybersecurity technology, relevant activities may qualify.

Routine security patching, standard penetration testing and ordinary maintenance should not be treated as qualifying R&D without a separate basis under the rules.

4. SaaS Platform Improvements

A SaaS provider is attempting to resolve an architectural problem that prevents a new platform feature from operating reliably at the required scale.

The company explores alternative approaches and tests technical hypotheses to overcome the limitation.

The qualifying work may include activities undertaken to resolve the uncertainty. Routine feature development, normal product updates and standard configuration must be distinguished from that work.

Which Costs Can Be Included in an RD Tax Claim?

Identifying an eligible project is only one part of the process. Each cost must also satisfy the applicable expenditure rules.

Staff Costs

Eligible staff expenditure may include qualifying proportions of salaries, wages, employer National Insurance contributions and employer pension contributions for employees directly and actively involved in R&D.

The proportion claimed should reflect the actual qualifying activities and the applicable rules, rather than automatically including an employee’s entire annual salary.

For example, a software engineer may spend part of the year resolving technological uncertainty and the remainder delivering routine product features. The claim should distinguish between those activities using reasonable supporting records.

Subcontractor Costs

Payments to subcontractors may be eligible in certain circumstances. The applicable rules depend on the accounting period, the contractual arrangements, the parties involved and who is entitled to claim for the R&D.

For accounting periods beginning on or after 1 April 2024, the rules generally focus on the company that intended or contemplated that R&D would be undertaken as part of the contracted work, subject to the detailed legislation and exceptions.

Technology businesses should review contracts and project responsibilities before deciding which party can claim.

Externally Provided Workers

Some costs relating to externally provided workers may qualify, depending on how the workers are supplied, the relevant arrangements and the rules applying to the accounting period.

Businesses using recruitment agencies, staffing providers or specialist contractors should examine the arrangements rather than assuming that all contractor invoices qualify.

Software and Cloud Computing

Certain software costs and cloud computing expenditure may qualify where they fall within the permitted categories and relate to qualifying R&D activities.

However, a business’s entire cloud infrastructure bill should not automatically be included. General hosting, routine operations and costs unrelated to the qualifying work need to be assessed separately.

Consumables

Materials and other eligible consumables used directly in qualifying R&D may be claimable under the applicable rules.

The treatment of materials, energy and other expenditure depends on the specific circumstances. Capital expenditure and other excluded costs should not be included simply because they support a development project.

Which Costs Are Usually Excluded?

Depending on the circumstances and the relevant scheme, costs that do not qualify may include:

• Routine production and commercial service delivery.
• Sales, marketing and general business development.
• General administrative expenditure.
• Capital expenditure, such as the purchase of capital equipment.
• Land costs and costs associated with patents and trademarks.
• Routine maintenance and standard bug fixing.
• Cloud or software expenditure that does not meet the applicable qualifying-cost rules.

A cost being necessary for the business does not automatically make it eligible for RD Tax relief.

How to Build Strong Evidence for RD Tax Eligibility

A well-supported claim should explain what the business was trying to achieve, why the problem involved technological uncertainty and what the team did to address it.

Useful records may include:

Project descriptions: Explain the intended advance and the existing technological baseline.

Technical evidence: Retain architecture documents, design records, experiments, test results, engineering notes and records of unsuccessful approaches.

Staff records: Document the work undertaken by employees and other personnel involved in the qualifying activities.

Financial evidence: Keep payroll information, invoices, contractor agreements and cost-allocation calculations.

Timeline records: Establish when the qualifying work began and ended, including when the relevant uncertainty was resolved or the work stopped.

Evidence should reflect the work actually performed. It should not be created simply to make routine activities appear to qualify.

What About Grants and Overseas Development Teams?

Grant funding, subcontracting and overseas development arrangements can affect the analysis, but the treatment depends on the applicable rules and accounting period.

For accounting periods beginning on or after 1 April 2024, the merged RDEC and ERIS schemes have specific rules for contracted-out R&D and restrictions on certain overseas expenditure.

A UK company working with an overseas development team should therefore review who makes the decisions about the R&D, where the work is undertaken, the contractual arrangements and which costs meet the relevant conditions.

Do not assume that every overseas invoice is eligible or that all grant-funded expenditure is automatically excluded.

How About Accounting UK Supports RD Tax Reviews

About Accounting UK supports UK software, SaaS and technology businesses in assessing potential RD Tax opportunities.

Depending on the engagement, support may include:

• Reviewing technical projects for potential eligibility.
• Identifying qualifying and non-qualifying activities.
• Assessing staff, software, cloud and subcontractor expenditure.
• Reviewing contractual arrangements and potential claim ownership.
• Organising technical and financial evidence.
• Considering relevant HMRC reporting requirements.

To discuss your company’s development work, visit the About Accounting UK RD Tax relief service.
To get free eligibility audit visit our technical support partner Easy R&D.

Frequently Asked Questions

Does all software development qualify for RD Tax relief?

No. Software development must meet the relevant scientific or technological criteria. Routine coding, standard implementation, ordinary maintenance and familiar solutions do not qualify automatically.

Can a startup claim RD Tax relief?

A startup may be eligible if it operates through an eligible company, undertakes qualifying R&D and meets the relevant conditions. Being new or innovative in a commercial sense is not enough by itself.

Can cloud computing costs qualify?

Certain cloud computing costs may qualify under the applicable rules when they relate to qualifying R&D. General hosting and unrelated infrastructure costs should not automatically be included.

Can a company claim for subcontracted R&D?

Potentially. Eligibility depends on the accounting period, contract, R&D arrangements and applicable rules determining which company may claim.

Do failed R&D projects qualify?

Potentially. A project does not have to achieve its intended result if it genuinely sought a qualifying scientific or technological advance and the other conditions are satisfied.

What records should a business keep?

Businesses should retain technical descriptions, evidence of uncertainty, project timelines, staff activity records, contracts, invoices and calculations supporting the expenditure claimed.

Final Thoughts

The most important step in assessing RD Tax eligibility is to examine the technical work and the costs together. A project may be commercially important without qualifying, while unsuccessful work may still meet the criteria if it involved genuine scientific or technological uncertainty.

UK technology companies should review their development activities carefully and keep clear records before submitting a claim.

Need help reviewing potential eligibility? Visit our technical partner Easy R&D to get free audit and other necessary UK’s RD Tax relief support.