If your small business has spent time and money developing a new product, improving a process, or solving a technical problem, you could be sitting on a valuable — and often overlooked — source of cash: R&D tax credits. Many small business owners assume R&D tax relief is only for laboratories or tech startups, but the reality is far broader. From manufacturing improvements to custom software builds, a surprising range of everyday business activities can qualify.
In this guide, we’ll walk through exactly what R&D tax credits are, whether your business is likely to qualify, and the step-by-step process for making a claim.

What Are R&D Tax Credits?

R&D tax credits are a UK government incentive designed to reward companies that invest in innovation. If your business has worked on a project that tried to achieve an advance in science or technology — and faced genuine technical uncertainty along the way — HMRC may allow you to claim back a percentage of the costs involved as a reduction in your Corporation Tax bill, or as a cash payment if your company is loss-making.
Since April 2024, the SME and RDEC schemes have been merged into a single scheme, simplifying the process. Most qualifying companies can now expect relief broadly in the range of 14.7% to 16.2% of their qualifying R&D expenditure, while loss-making businesses that spend heavily on R&D (over 30% of total expenditure) may access an enhanced rate of around 27% under the R&D Intensive scheme.

Does Your Small Business Qualify?

This is the question we’re asked most often — and the answer is usually broader than business owners expect. You don’t need to be a tech company or have a dedicated research department. What matters is whether your project meets HMRC’s specific definition of R&D.

The Three Key Tests

To qualify, your project generally needs to meet these criteria:
  • It sought to achieve an advance in a field of science or technology
  • It involved overcoming genuine scientific or technological uncertainty
  • A professional in the field could not have easily worked out the solution

Examples of Qualifying Activities

Qualifying R&D is far more common than most business owners realise. It can include:
  • Developing new or improved manufacturing processes
  • Building custom software or significantly modifying existing systems
  • Solving technical integration challenges between systems
  • Improving the efficiency, durability or performance of an existing product
  • Developing new construction techniques or materials
If you’ve ever found yourself thinking “we had to figure this out ourselves because nobody had really solved it before” — there’s a good chance you have a qualifying R&D project.

What Costs Can Be Included in Your Claim?

Once you’ve identified a qualifying project, the next step is calculating which costs can be included. Eligible costs typically include:
  • Staff costs for employees directly involved in the R&D project (salaries, employer NI, pension contributions
  • Subcontractor costs (subject to the current rules on subcontracted R&D)
  • Software licences used directly for the R&D work
  • Consumable materials used or transformed during the R&D process
  • A proportion of utility costs directly attributable to the R&D activity
It’s worth noting that under the current merged scheme, the rules around subcontracted and overseas R&D costs have changed significantly, so it’s important to get up-to-date advice rather than relying on older guidance you may have read previously.

How to Claim R&D Tax Credits: Step by Step

Step 1 — Identify Your Qualifying Projects

Review the work your business has carried out over the relevant accounting period and identify any projects that meet the three key tests above. This is often the step where a specialist R&D consultant adds the most value — business owners frequently underestimate just how much of their day-to-day work actually qualifies.

Step 2 — Calculate Your Qualifying Expenditure

Work out the eligible costs associated with each qualifying project, using the categories outlined above.

Step 3 — Prepare Your Technical Narrative

HMRC requires a technical report explaining the scientific or technological uncertainty your project addressed, and how you went about resolving it. This is a critical part of the claim — a vague or generic narrative is one of the most common reasons claims get challenged or delayed.

Step 4 — Submit Your Claim with Your Company Tax Return

R&D claims are submitted alongside your CT600 Company Tax Return, along with the required additional information form. Claims can generally be made for up to two years after the end of the relevant accounting period.

Step 5 — Respond to Any HMRC Queries

HMRC may ask follow-up questions about your claim, particularly given the increased scrutiny on R&D claims in recent years. Having clear, well-documented evidence from the outset makes this stage far smoother.

Common Mistakes Small Businesses Make

We regularly see small businesses either under-claim or over-claim due to a few common mistakes:
  • Assuming their work "isn't technical enough" to qualify, and not claiming at all
  • Failing to keep adequate records of time spent on R&D activities throughout the year
  • Writing a technical narrative that's too vague to satisfy HMRC's requirements
  • Including ineligible costs, which increases the risk of an HMRC enquiry
  • Not reassessing eligibility under the new merged scheme rules introduced in April 2024
Working with a specialist R&D tax consultant helps you avoid these pitfalls, ensuring your claim is both maximised and fully compliant.

Why Work with an R&D Tax Specialist?

R&D tax relief is a genuinely complex and frequently changing area of tax law. Preparing a claim without specialist support carries two real risks: under-claiming relief you’re entitled to, or submitting a claim that doesn’t hold up to HMRC scrutiny.
At Esperta, our R&D tax consultants work with small businesses across Manchester and the UK to identify qualifying projects, calculate accurate claims, prepare robust technical narratives, and handle the entire submission process — giving you confidence that your claim reflects the current rules and maximises the relief available to you.

Find Out If You Qualify

If your business has invested in developing new products, processes or solving technical challenges, it’s worth finding out whether you’re eligible for R&D tax relief — even if you’ve never claimed before.
Get in touch with Esperta today for a free, no-obligation R&D tax assessment. Our team will review your activities and give you a clear indication of whether you’re likely to qualify and how much you could potentially claim.