What are R&D tax credits?
R&D tax credits are a UK government incentive that lets companies reduce their corporation tax bill — or receive a cash payment from HMRC — in return for qualifying research and development expenditure.
The scheme is designed to encourage UK businesses to invest in innovation. In practice, it is a significant source of cash for qualifying tech, biotech, engineering, and product businesses — often in the range of £20,000–£250,000+ per year.
Who qualifies?
You do not need to be a scientific research company. HMRC’s definition of qualifying R&D expenditure is broad and includes:
- Developing new software features where the technical approach was not obvious
- Building custom internal tools with novel technical challenges
- Engineering new manufacturing processes
- Developing new pharmaceutical compounds
- Any project where you are attempting to resolve a scientific or technological uncertainty
The key test: did your team try to resolve a problem where the answer was not readily available to a competent professional in the field? If yes, the work may qualify.
Qualifying costs include: staff salaries, subcontractor costs, cloud computing costs, software licences used in R&D, and consumables directly used in R&D.
How much are R&D tax credits worth?
The scheme was restructured in 2023 into two main paths:
SME R&D Relief (for companies with fewer than 500 employees and turnover under €100m):
- Enhanced deduction of 86% on qualifying R&D expenditure (from 2023; reduced from previous 130%)
- Loss-making SMEs can claim a credit rate of 10% (under RDEC) — or 14.5% for “R&D intensive” companies where R&D makes up 30%+ of total expenditure
- A profitable SME spending £100k on R&D can reduce their tax bill by around £21,500
RDEC (Research and Development Expenditure Credit — for large companies and R&D-intensive SMEs):
- 20% above-the-line credit on qualifying expenditure
For most early-stage tech businesses, the key benefit is the R&D tax credit cash refund: if your company is loss-making (as many growth-stage startups are), HMRC pays you cash rather than reducing a tax bill you don’t have.
The problem: the wait
HMRC typically takes 3–9 months to process an R&D tax credit claim and pay out. For a startup that has spent heavily on engineers over the past year, this cash can be critical — but waiting until HMRC processes the claim creates a significant cash flow gap.
R&D tax credit advances
R&D credit advances (also called R&D credit-backed finance) are loans that are secured against your pending R&D tax credit claim. The lender advances up to 80–85% of the expected HMRC payout before HMRC pays — typically within 2–4 weeks of application.
When HMRC pays, you repay the advance. Net cost is typically 1–3% of the claim value — significantly less than other bridge financing options.
This product is available through Fundably’s 50+ lender panel. Apply here.
Practical considerations
You need a prepared R&D tax credit claim: either in draft or signed off by an R&D tax specialist or your accountant. The lender needs to verify the claim size.
R&D advisors: if you do not already use a specialist, consider engaging one. R&D tax advisors typically work on a success fee (10–15% of the claim) and can identify qualifying expenditure your team may have missed.
Accounting software: cloud accounting tools (Xero, QuickBooks, Sage) can help identify qualifying costs. Some R&D credit platforms integrate directly.
HMRC processing times: R&D credit advances are particularly useful when there is uncertainty about HMRC’s payment timeline.
If your accountant is not currently advising on R&D credits, they can earn commission from an R&D funding advance referral via Fundably’s accountant partner programme.