Aiglon Consulting
11 Contributions by Aiglon Consulting Experts
PRACTICE NOTES
R&D reliefs—meaning of R&D
This Practice Note explains what counts as R&D for four corporation tax reliefs:
Pre‑1 April 2024: SME R&D relief/tax credit and the R&D expenditure credit (RDEC)
Post‑1 April 2024: the merged RDEC and enhanced relief for loss‑making R&D‑intensive SMEs
For tax, R&D follows GAAP (FRS 102/IAS 38) as modified by Secretary of State guidelines maintained by DSIT. The 7 March 2023 version confirms that pure and applied mathematics count as science. HMRC’s Guidelines for Compliance expand on this.
FRS 102/IAS 38 broadly define research as planned original investigation for new knowledge, and development as applying that knowledge to design new or substantially improved outputs before commercial use.
Under the Guidelines, qualifying work sits within a project seeking an advance in science or technology, directly addressing scientific or technological uncertainty, with certain related indirect tasks also eligible. R&D runs from the start of work to
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PRACTICE NOTES
Enhanced relief for R&D-intensive loss-making SMEs (post-1 April 2024) FORTHCOMING CHANGE: R&D tax reliefs advance clearances:
Following a first announcement at Autumn Budget 2024 within the government’s Corporate Tax Roadmap, and a consultation issued at Spring Statement 2025, Budget 2025 set out the consultation outcome confirming a pilot of a targeted R&D advance assurance service. This will cover specified aspects of small and medium-sized enterprises’ R&D claims and is scheduled to commence from spring 2026. The pilot will run alongside the current R&D advance assurance.
This Practice Note covers the enhanced research and development (R&D)-intensive support (ERIS) for R&D‑intensive, loss-making SMEs, applying to accounting periods starting on or after 1 April 2024, subject to transitional provisions.
For details of the merged R&D expenditure credit generally applicable for accounting periods beginning on or after 1 April 2024 (the merged RDEC), see Practice Note: The merged R&D
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PRACTICE NOTES
The merged R&D expenditure credit (post-1 April 2024) FORTHCOMING CHANGE: R&D tax reliefs advance clearances and clarification of corporation tax treatment of payments for surrender of credit within groups:
Following an initial announcement at Autumn Budget 2024 within the government’s Corporate Tax Roadmap, and a consultation released at Spring Statement 2025, the government confirmed at Budget 2025 that it will pilot a targeted R&D advance assurance service from spring 2026. The pilot will focus on specified elements of R&D claims made by small and medium-sized enterprises and will run in parallel with the existing R&D advance assurance.
At Budget 2025, the government also announced that Finance Bill 2026 will introduce legislation to make clear that payments made on or after 26 November 2025 between group companies, in consideration for one company surrendering RDEC to another, are to be ignored for corporation tax purposes. These
Tax
PRACTICE NOTES
Qualifying R&D expenditure (pre-1 April 2024)
This Practice Note sets out the scope of qualifying expenditure for two R&D relief schemes, each subject to detailed commencement and transitional provisions:
the research and development relief for small or medium-sized enterprises (SMEs) for accounting periods beginning before 1 April 2024—see Practice Notes: SME R&D relief—additional deduction (pre-1 April 2024) and SME R&D relief—tax credit (pre-1 April 2024); and
the R&D expenditure credit scheme applying to accounting periods beginning before 1 April 2024—see Practice Note: R&D expenditure credit (pre-1 April 2024).
Together, this Practice Note refers to these as the pre-1 April 2024 schemes.
For information about the reliefs generally applying to accounting periods beginning on or after 1 April 2024, see Practice Notes: The merged R&D expenditure credit (post-1 April 2024) and Enhanced relief for R&D-intensive loss-making SMEs (post-1 April 2024). For details on what counts as
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PRACTICE NOTES
R&D expenditure credit (pre-1 April 2024)
This Practice Note outlines the R&D expenditure credit (RDEC) regime that applies to accounting periods starting before 1 April 2024, subject to transitional provisions.
For details of the primary research and development relief available to small or medium-sized enterprises (SMEs) for periods beginning before 1 April 2024, see Practice Notes: SME R&D relief—additional deduction (pre-1 April 2024) and SME R&D relief—tax credit (pre-1 April 2024).
Collectively, in this Practice Note, these two arrangements effective before 1 April 2024 are called the pre-1 April 2024 schemes.
For guidance on the reliefs that generally apply to accounting periods commencing on or after 1 April 2024, see Practice Notes: The merged R&D expenditure credit (post-1 April 2024) and Enhanced relief for loss-making R&D-intensive SMEs (post-1 April 2024).
What is the pre-1 April 2024 R&D expenditure credit? Refer to the Practice Notes mentioned for the
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PRACTICE NOTES
SME R&D relief—tax credit (pre-1 April 2024)
This Practice Note addresses the principal research and development (R&D) relief available to small and medium-sized enterprises (SMEs) for accounting periods that start before 1 April 2024, subject to any transitional rules, as considered in this guidance. For more detail, refer to Practice Note: SME R&D relief—additional deduction (pre-1 April 2024) and associated references. For further guidance on the R&D expenditure credit applicable to accounting periods commencing before 1 April 2024, see Practice Note: R&D expenditure credit (pre-1 April 2024). Collectively, this Practice Note calls these two arrangements the pre-1 April 2024 schemes within this note. For details on reliefs for R&D that broadly apply to accounting periods starting on or after 1 April 2024, see Practice Notes: The merged R&D expenditure credit (post-1 April 2024) and Enhanced relief for
Tax
PRACTICE NOTES
Patent box
The patent box is an elective regime that delivers an effective corporation tax rate of 10% on worldwide profits attributable to qualifying patents and comparable intellectual property (IP) rights. Profits that qualify for the relief are, in substance, charged to corporation tax at the reduced rate of 10%. The relief is given effect through legislation that permits a deduction when calculating a company’s trading profits for a particular accounting period. For general background on the patent box, see Practice Note: Patent box—key features of the regime. To align with BEPS Action Plan 5, the patent box rules were revised on 1 July 2016 to introduce an R&D fraction restriction, which can curtail the value of patent box claims for businesses that have acquired relevant IP and/or sub-contracted development of relevant IP to affiliates. A series of ancillary amendments to the rules
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PRACTICE NOTES
The patent box
The patent box is an optional regime that delivers an effective 10% corporation tax rate on worldwide profits derived from qualifying patents and comparable intellectual property (IP) rights. Its full advantages were introduced in stages over a five-year period, concluding on 1 April 2017.
To meet BEPS Action Plan 5 requirements, the patent box rules were amended on 1 July 2016 to introduce an R&D fraction restriction, which can reduce the value of patent box claims. A series of ancillary amendments was also made to ensure the restriction was implemented correctly.
Those whose election into the patent box took effect before 1 July 2016 were permitted to continue claiming under the earlier (grandfathered) regime until 30 June 2021, in relation to qualifying IP applied for before 1 July 2016 (see Practice Note: Patent
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PRACTICE NOTES
At the outset of IP development, a company might earn revenue from qualifying IP rights yet still fail to turn a profit. Alternatively, it may report profits that are below a routine return on the costs of generating that income. Where the patent box computation gives rise to a relevant IP loss (RIPL)—see the Practice Note on calculating patent box relief (new rules)—the company cannot claim patent box relief for the loss-making trade in that accounting period. Instead, it must:
set off the RIPL:
first, against any patent box profits from another trade carried on by the company, and
secondly, against any patent box profits of another group company for the relevant accounting period, and
to the extent a balance
Tax
PRACTICE NOTES
Qualifying R&D expenditure (post-1 April 2024) FORTHCOMING CHANGE: R&D tax reliefs advance clearances:
Following an initial announcement at Autumn Budget 2024 within the government’s Corporate Tax Roadmap, and a consultation released at Spring Statement 2025, Budget 2025 confirmed the consultation outcome: a targeted R&D advance assurance pilot for specified elements of R&D claims by small and medium-sized enterprises will commence from spring 2026. This pilot will operate alongside the existing R&D advance assurance. For further details, see News Analysis: Budget 2025—Tax analysis.
This Practice Note explains the scope of qualifying expenditure for the two R&D relief schemes below (both subject to detailed commencement and transitional rules):
the merged R&D expenditure credit (the merged RDEC) for accounting periods beginning on or after 1 April 2024—see Practice Note: The merged R&D expenditure credit (post-1 April 2024); and
the enhanced relief for
Tax
PRACTICE NOTES
SME R&D relief—additional deduction (pre-1 April 2024)
This Practice Note addresses the principal research and development (R&D) relief for small or medium-sized enterprises (SMEs) for accounting periods beginning before 1 April 2024, subject to transitional provisions. For further detail, see Practice Note: SME R&D relief—tax credit (pre-1 April 2024). For the R&D expenditure credit that applies to periods beginning before 1 April 2024, see Practice Note: R&D expenditure credit (pre-1 April 2024). In this Practice Note, these two are collectively described as the pre-1 April 2024 schemes. For guidance on the schemes of relief for R&D generally applying to accounting periods beginning on or after 1 April 2024, see Practice Notes: The merged R&D expenditure credit (post-1 April 2024) and Enhanced relief for R&D-intensive loss-making SMEs (post-1 April 2024).
SME R&D relief—additional deduction
Where the relevant conditions are satisfied, an SME company may claim an
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