Qualifying R&D: Case Studies for Large Firms

Large businesses in the UK can claim a 20% tax credit on eligible R&D costs through the Research and Development Expenditure Credit (RDEC) scheme. This credit is designed to reduce financial risks associated with innovation, whether a company is profitable or operating at a loss. From 1 April 2024, a unified scheme applies to all businesses, simplifying the process but introducing stricter compliance requirements.

Key Points:

• Who Can Claim? Large firms with 500+ employees and either £100M+ turnover or £86M+ balance sheet total.
• Eligible Costs: Staff salaries, consumables, cloud computing, software licences, and certain subcontractor expenses.
• Recent Changes:
  • RDEC rate increased to 20% (April 2023).
  • Additional Information Form (AIF) mandatory from August 2023.
  • Overseas R&D work faces stricter rules.
• Net Benefits: 15% for profit-making companies (25% tax rate) and 16.2% for loss-making firms.

Case Studies:

1. Tech Firm: Claimed £500,000 annually for R&D on AI/ML frameworks in cloud architecture.
2. Manufacturer: Secured £178,000 over two years by improving steel forming processes.
3. Life Sciences: Identified £2.3M in annual R&D costs for research projects like advanced diagnostics and biodiversity tools.

Takeaway:

Large firms often overlook qualifying R&D activities. Expert guidance helps identify eligible projects, ensuring compliance and maximising tax relief.

Case Study 1: Software Development in a Large Tech Firm

Project Overview and Goals

A global technology integrator faced major technical hurdles while developing specialised cloud architecture tailored for insurance clients. This was part of its Commercial Platform Re-Engineering initiative for mortgage services. Key obstacles included integrating SharePoint with webMethods servers, addressing data encryption challenges within API frameworks, and automating CI/CD pipelines.

To pinpoint qualifying R&D activities, the firm organised a series of interviews and technical workshops with department heads across its technology divisions. This thorough evaluation process reinforced the foundation of their claim.

Qualifying Activities and Costs

The R&D activities focused on building proprietary AI/ML frameworks and advanced systems for data ingestion and API version control. The largest portion of the claim was attributed to staff costs, which included salaries, employer's National Insurance, and pension contributions for the software engineers and developers directly involved. Additional claims were made for expenses related to cloud computing services and software licences used during the R&D process.

A key part of the claim involved reviewing contractual arrangements for Externally Provided Workers (EPWs). The firm prepared detailed records to ensure that contractor agreements met the eligibility criteria under RDEC. This included clearly distinguishing between qualifying activities like "pure platform development" and non-qualifying work such as staff augmentation for end customers. This careful approach ensured compliance with HMRC's guidelines.

By meticulously categorising eligible costs, the firm was able to secure substantial RDEC benefits.

Financial Results Under RDEC

The refined R&D activities yielded impressive financial returns. The technology integrator successfully claimed £500,000 annually through RDEC for its insurance client projects, with HMRC approving the claim in less than a month. Over two consecutive years, the firm secured R&D relief, with the RDEC benefits channelled directly back into departmental budgets. This allocation not only provided visible financial support to technical teams but also encouraged broader backing for R&D efforts across the organisation.

"ResearchQX has been instrumental in helping our business secure valuable research funding. Their tech-led approach and experienced team have provided us with robust reporting and ensured a smooth process throughout." – Head of Technology, Leading AI & Data Analytics Business

sbb-itb-8ea0335

Case Study 2: Manufacturing Process Improvements

Challenges and Technical Uncertainties

Malthouse Engineering, a company with 80 employees operating across 42 industries, faced major hurdles in producing high-specification components for the rail sector. The cold forming process they initially used for steel brackets was ineffective, with fewer than 10% of components passing quality tests. This made the process not only wasteful but also commercially unsustainable.

To meet the stricter tolerances required, the company transitioned to a hot forming process. However, this switch brought its own set of challenges. The team had to address increased energy consumption while eliminating the need for costly post-process heat treatments, all with the aim of achieving a zero reject rate. These were not issues that could be solved using standard engineering practices.

Additionally, the firm tackled hazardous manual scrap removal by designing an automated system. This involved developing a conveyor system for under-bed metal scrap removal, which required solving complex issues related to material flow, safety integration, and operational efficiency. These challenges went beyond the knowledge typically available to professionals in the field.

Eligible Costs and Activities

To address these challenges, Malthouse Engineering identified several R&D activities aimed at overcoming their production limitations. These activities focused on technical design, founding, and finishing processes. The bulk of the R&D claim centred on staff costs, covering salaries for engineers working on the hot forming process and the automated scrap removal system. The firm also claimed 65% of costs paid to subcontractors and Externally Provided Workers who contributed to the qualified R&D work.

Other eligible costs included consumables used during prototype development and testing, as well as software that supported the R&D efforts. The company also found that modifications to customer-supplied tool designs and extensive prototype testing qualified as R&D activities.

"We identified that any amends made to tool designs supplied by their customers are eligible activities. We also uncovered a substantial amount of testing activities... that also matched the HMRC criteria for a successful claim." – Easy R&D

These activities formed the foundation of a successful RDEC claim, delivering both financial benefits and operational improvements.

RDEC Claim Value and Benefits

Malthouse Engineering secured £178,000 in R&D tax credits over an initial two-year period and has continued to receive five-figure annual returns since then. The hot forming process achieved a zero reject rate, significantly cutting manufacturing costs and eliminating the waste associated with the earlier cold forming method.

The reclaimed tax credits were reinvested in modernising capital equipment and IT infrastructure. These advancements spurred a culture of innovation within the company, encouraging employees at all levels to propose process improvements. The visible financial benefits also motivated the team to identify additional qualifying R&D activities across the organisation.

"Most importantly we were extremely pleased with the substantial financial return and are looking forward to them doing future claims and indeed, those of our close contacts." – Roy Taylor, Managing Director, Malthouse Engineering

Case Study 3: Life Sciences R&D in a Global Company

Research Objectives and Qualifying Projects

A UK-based global research organisation, focused on food safety, environmental protection, and agricultural innovation, faced the challenge of identifying R&D activities eligible for tax relief across more than 2,000 projects. Initially, the company believed much of its work fell outside the scope of R&D tax relief, assuming it to be routine rather than innovative.

In April 2025, the organisation partnered with ResearchQX to hold technical workshops aimed at clarifying eligibility under the Research and Development Expenditure Credit (RDEC) scheme. These sessions helped uncover less obvious qualifying activities that tackled genuine scientific and technological uncertainties. The qualifying projects spanned diverse research areas, such as:

• Environmental risk assessments exploring plant protection product behaviour.
• Development of advanced diagnostic tests for quarantine pests and diseases in highly regulated settings.
• Biodiversity assessment tools designed to support sustainable agriculture.
• Botanical bio-synergists aimed at addressing pesticide resistance in crop pests.

This focused approach allowed the organisation to accurately pinpoint projects that met R&D criteria, forming a solid foundation for calculating eligible expenses.

R&D Costs and Relief Claimed

The organisation identified over £2.3 million in qualifying R&D expenditure annually. A significant portion of these costs related to staff wages for scientists and researchers directly involved in the projects. Additional eligible expenses included:

• Materials used in experimental research.
• Software and data licences essential for research activities.
• Cloud computing costs.
• Fees for specialist contractors, which boosted claim values by approximately 22% .

Each project was carefully reviewed and prioritised to ensure alignment with HMRC's requirements.

Impact of RDEC on Tax Position

The precise identification of eligible costs led to a significant impact on the company’s tax position. After adjustments for Corporation Tax, the net benefit from RDEC typically ranged between 15% and 16.2%. To streamline future claims, the company implemented real-time processes to identify and document R&D activities and associated costs as they occurred. This proactive system reduced administrative burdens, ensured compliance with HMRC's evolving expectations, and improved the efficiency of claim submissions.

The structured approach also resulted in smooth review processes and timely approvals from HMRC for claims submitted over two consecutive years.

Common Patterns from Large Firm R&D Claims

Looking at these case studies, certain patterns stand out in how large firms successfully approach RDEC claims.

Qualifying Criteria for R&D

A clear theme emerges from the examples: successful RDEC claims hinge on addressing genuine uncertainty through systematic experimentation. For a project to qualify, it must tackle a problem where achieving a technical goal - or figuring out how to achieve it - isn't straightforward, even for skilled professionals in the field.

Large companies typically rely on methods like iterative testing, modelling, simulations, and evaluating alternatives. The work must push beyond what’s already known or established in the field, rather than just expanding the company’s internal knowledge base. Importantly, these activities need to be grounded in the principles of hard sciences - such as physics, biology, computer science, or engineering.

HMRC makes a key distinction here: commercial innovation (doing something new for the market) doesn’t qualify, but technological advancement (improving what’s possible in a broader context) does. This means routine upgrades, standard optimisation methods, or adapting existing technologies without major changes won’t meet the criteria.

The case studies also highlight the value of technical workshops in identifying qualifying activities. These workshops often uncover innovative efforts that might otherwise be missed. For instance, the IT sector makes up over 25% of all R&D tax credit claims, underscoring the importance of pinpointing technological uncertainties in software development. Below are examples showing how specific innovations translate into RDEC benefits.

Activity Comparison Table

Here’s a snapshot of how various activities align with the qualifying criteria:

Conclusion and Next Steps

Summary of Main Points

The case studies highlight a recurring issue: large companies often overlook R&D opportunities, dismissing their work as routine. However, with the help of specialists, businesses have uncovered significant eligible expenditure - for instance, one global life sciences company identified over £2.3 million annually. The key to success lies in focused technical workshops, structured EPW contracts, and real-time tracking of R&D activities.

Professional advisors play a crucial role by translating complex engineering or scientific work into detailed reports that meet HMRC’s strict standards. This is particularly valuable for companies managing extensive portfolios, such as one telecom software firm whose claim, covering more than 2,000 active projects, gained HMRC approval within 10 weeks. These examples reinforce the central idea: large firms often need expert guidance to uncover qualifying R&D activities that technical teams might not recognise. With the right support, businesses can tap into hidden opportunities and maximise their R&D potential.

How Zest R&D Tax Advisors Can Help

Zest R&D Tax Advisors (https://zest.tax) specialise in guiding UK companies through the complexities of R&D tax relief claims, helping businesses achieve the best possible financial outcomes. Their services include claim preparation, HMRC submissions, and compliance support, all while working alongside your existing accountants to identify activities that might otherwise go unnoticed.

For large organisations managing complex, multi-departmental projects, Zest offers the technical and financial expertise to tackle challenges like navigating contractual intricacies, optimising EPW arrangements, and implementing effective internal processes. Their percentage-based fee model ensures that you only pay when your claim succeeds, making their services accessible even for companies exploring RDEC for the first time.

Whether your focus is on software development, manufacturing improvements, or life sciences research, Zest can help you realise the full value of your innovation with structured and compliant RDEC claims.

FAQs

What evidence does HMRC expect to prove “technical uncertainty”?

HMRC requires you to provide evidence that highlights the technical challenges your project sought to tackle, the knowledge already established in the field, and how your work dealt with scientific or technological uncertainty. Examples of such evidence could include project records, results from testing, or documents that detail your problem-solving processes.

How do the post‑April 2024 rules change large company RDEC claims?

From April 2024, large companies claiming under the Research and Development Expenditure Credit (RDEC) scheme will receive a 20% taxable credit for eligible R&D costs incurred between 1 April 2023 and 31 March 2024. Once Corporation Tax adjustments are applied, this results in a net benefit of approximately 15%. To make the most of these updated rules, maintaining precise records and ensuring compliance is absolutely crucial.

How should we track and apportion staff, cloud and contractor costs for RDEC?

To manage and allocate staff, cloud, and contractor costs for RDEC claims, it's essential to stick to HMRC's guidelines.

• Staff costs: Break down salaries based on the time employees dedicate to R&D activities. This can be tracked either by logging specific hours worked or by calculating percentages of their time.
• Cloud costs: Only claim the portion of cloud expenses that directly supports R&D work. Ensure this is clearly documented.
• Contractor costs: Allocate contractor expenses based on the extent of their involvement in R&D projects. Be mindful of HMRC's restrictions when it comes to subcontractors who are not directly connected to your business.

Thorough and accurate record-keeping is crucial to ensure compliance with HMRC's requirements.

Related Blog Posts

• RDEC Qualifying Costs Explained
• RDEC for Carbon Reduction Projects
• Common RDEC Eligibility Mistakes
• 5 Green R&D Projects That Claimed Tax Relief