Who can't claim R&D tax relief?

Organisations excluded by name

The legislation defines an “ineligible company” and shuts it out of the relief entirely. There are four categories, plus a power for the Treasury to add more by order:

• Charities. A charity cannot claim, whatever it spends on research. This is the exclusion that surprises people most, because charitable research bodies are often doing exactly the kind of work the relief was designed for.
• Institutions of higher education. Universities and the other bodies within the higher education sectors of England, Wales, Scotland and Northern Ireland.
• Scientific research organisations. Bodies approved under the corporation tax rules for scientific research associations.
• Health service bodies. NHS bodies as defined in the corporation tax legislation.

A trading subsidiary of an excluded body is a different entity and is not itself excluded. A charity’s wholly-owned trading company can claim in its own right if it meets the ordinary conditions — but where the charity funds the subsidiary’s work, the separate questions of contracted-out and subsidised R&D decide whether there is anything left to claim on. That analysis, not the ineligible-company rule, is where these claims usually fail.

Structures that are outside the relief

R&D relief is a corporation tax relief, so it reaches only entities within the charge to corporation tax:

Where R&D is carried on inside a partnership or an LLP that has corporate members, the relief is not simply unavailable — but it is not available to the partnership, and the position of each corporate member has to be worked out separately. Treat any promoter proposal built on an LLP structure with suspicion until that analysis has been done.

Companies that are eligible but cannot claim this period

Being an eligible company is not the end of it. Four situations stop a claim in a particular accounting period:

You are not trading yet. The merged scheme credit requires a trade in the accounting period. A pre-trading company cannot claim it. The only route for pre-trading expenditure is the ERIS pre-trading election, which is open to loss-making SMEs that meet the R&D intensity condition.

You are not a going concern. For the reformed reliefs, the condition looks at your latest published accounts and at whether you are in administration or liquidation. Under ERIS, failing it stops the claim; under the merged scheme, the credit is computed but the payable element is withheld.

A group election has made you ineligible. Since 1 April 2024, two companies in the same group can jointly elect that one of them is treated as an ineligible company for R&D contracted out to it by the other. The effect is to move the claim to the contracting company. It is elective and revocable, and it is easy to forget that a company has been put on the wrong side of it.

You are in the wrong scheme for the expenditure. For periods beginning before 1 April 2024, an SME whose R&D was subsidised or contracted out to it could not claim that expenditure under the SME scheme, though it could often claim under RDEC. That is a restriction on which relief applies rather than on who the company is, and it still governs open legacy years.

Expenditure that cannot be claimed even by an eligible company

Two exclusions operate on the spending rather than the claimant, and both are commonly mistaken for eligibility problems:

• Capital expenditure. R&D tax relief covers revenue expenditure deductible against the trade. Capital spending on R&D is dealt with by research and development allowances instead.
• Expenditure attributable to an exempt foreign permanent establishment. Where a company has elected for the foreign branch exemption, expenditure brought into account for that branch is outside the relief.