R&D tax relief for renewable energy and cleantech companies
Renewable energy and cleantech projects can involve qualifying R&D, but their environmental value does not make them eligible by itself. For tax purposes, the project must seek an advance in overall science or technology and address scientific or technological uncertainty that a competent professional could not readily resolve.
Lexmore helps UK companies assess that test, identify the activities and costs that may qualify, and prepare an evidence-led R&D tax relief claim.
When can renewable energy and cleantech work qualify?
The starting point is the scientific or technological advance being sought. It must be an advance in the overall knowledge or capability of the relevant field, not simply something new to the company.
The company must identify the scientific or technological uncertainties encountered and explain why their resolution was not readily available or deducible to a competent professional. Qualifying activities directly contribute to resolving those uncertainties, together with certain qualifying indirect activities.
A commercially unsuccessful or abandoned project can still contain qualifying R&D. Success is not the test. The purpose of the work, the state of knowledge when it began and the method used to address the uncertainty are what matter.
Projects that may contain qualifying R&D
These examples are indicators, not automatic grounds for a claim. Each project must be assessed against the statutory test.
Renewable generation and conversion
Work to improve the performance, reliability or durability of solar, wind, hydro, geothermal or other generation technologies may qualify where an established solution was not readily deducible. This could include novel component design, control methods, materials or integration techniques.
Energy storage and battery systems
Potentially relevant work includes cell chemistry, battery-management systems, thermal control, degradation, safety, charging performance and integration with other energy systems. Routine selection or installation of an existing storage product would not qualify by itself.
Grid integration and power electronics
Projects may seek advances in inverter design, voltage or frequency management, forecasting, distributed-energy control, demand response or the integration of intermittent generation. The company must identify the technological uncertainty rather than rely on the commercial complexity of the project.
Heating, cooling and thermal systems
The development of heat pumps, heat-recovery systems, thermal storage, refrigeration or building-energy controls may involve qualifying work where the required performance could not be achieved using readily available knowledge or standard engineering practice.
Low-carbon materials and industrial processes
Work on new materials, lower-energy production, process electrification, alternative fuels or emissions reduction may qualify where it seeks a genuine advance in science or technology. Meeting a lower-carbon target through routine substitution or established equipment is not enough.
Resource recovery, recycling and waste treatment
Projects involving separation, recovery, treatment, reuse or conversion technologies may contain R&D where material variability, contamination, scale or process interaction creates uncertainty that a competent professional could not readily resolve.
What normally does not qualify?
- Purchasing or installing standard renewable-energy equipment.
- Routine configuration, commissioning or maintenance.
- Adopting an established process that is merely new to the company.
- Energy-efficiency work based on readily available methods.
- Commercial, financing, planning or market uncertainty.
- Work undertaken solely for regulatory approval or certification.
- Routine testing, data collection or monitoring.
- Aesthetic, branding or customer-experience improvements.
Environmental benefit, technical difficulty and high project cost do not, on their own, establish eligibility.
What evidence supports a claim?
Evidence should show what was known at the start, what advance was sought and why the technical route was not readily deducible. Useful contemporaneous evidence can include:
- Design requirements and the technical baseline.
- The identity and relevant experience of competent professionals.
- Technical risk registers, calculations and modelling.
- Test plans, prototypes and trial results.
- Records of failed or rejected approaches.
- Design revisions and engineering change records.
- Meeting notes and technical correspondence.
- Project accounting, time records and cost-apportionment methods.
The absence of a particular document does not automatically prevent a claim, but the company must provide a coherent, supportable explanation of the work and costs.
Which costs may be included?
The rules for contractors, externally provided workers and overseas activity require particular care. Eligibility depends on the accounting period, contractual arrangements, who decided to undertake the R&D and where the work took place.
Production and distribution costs, capital expenditure, land and the cost of patents or trademarks are not qualifying R&D expenditure under these reliefs.
See the qualifying R&D costs guideHow Lexmore helps
1. Assess the technical position
We speak with the people who understand the work and test each project against the tax definition of R&D. If we do not believe the work meets the test, we say so before recommending a claim.
2. Establish the evidence
We identify the baseline, advance, uncertainties, competent professionals and supporting records, including any gaps that should be addressed before submission.
3. Review the expenditure
We map costs to qualifying activities, consider the relevant scheme and document the basis of any apportionment and external arrangements.
4. Prepare the claim
We prepare the technical and financial support and the Additional Information Form, then coordinate the Corporation Tax return position with the company or its accountant.
5. Provide enquiry support
If HMRC opens an enquiry, we manage correspondence and defend the technical and financial basis of the claim. We cannot determine HMRC's decision or represent clients at tribunal.
If a claim is reduced or denied, the company may have to repay relief and HMRC may charge interest and, in some circumstances, penalties. Read about R&D enquiry support.
Which R&D scheme applies?
For accounting periods beginning on or after 1 April 2024, qualifying companies generally claim under the merged R&D expenditure credit scheme. Enhanced R&D Intensive Support may instead be available to a qualifying loss-making, R&D-intensive SME.
Earlier periods fall under the previous SME and R&D expenditure credit rules. The accounting period, company position, contracting arrangements and any connected companies must be considered before treatment can be confirmed.
Find out which R&D scheme applies.Could Patent Box also apply?
A cleantech company that owns or exclusively licenses qualifying patent rights may also need to consider Patent Box. It can apply an effective 10% Corporation Tax rate to qualifying relevant IP profits, not to total revenue or all company profits.
The company must satisfy the relevant ownership, development and profit-calculation conditions and make an election within the applicable time limit.
Explore Patent Box tax relief.R&D claim deadlines
For a period of account lasting 18 months or less, the claim deadline is generally 24 months from the final day of that period. A different 42-month rule applies where the period of account is longer than 18 months.
Some companies must also submit a claim notification within six months after the end of the period of account. Exemptions and exceptions apply, so previous claims and filing dates must be checked.
See how and when to make an R&D claim.Frequently asked questions
Does developing a sustainable product automatically qualify?
No. The project must seek an advance in overall science or technology and attempt to resolve scientific or technological uncertainty. A product being sustainable, novel or commercially valuable is not sufficient by itself.
Can an unsuccessful cleantech project qualify?
Potentially. A project does not have to achieve the intended advance, provided it genuinely sought the advance and the relevant work attempted to resolve qualifying uncertainty.
Can installing renewable-energy equipment qualify?
Routine installation or configuration of established equipment will not normally qualify. A wider integration project may contain qualifying R&D if it seeks a technological advance and encounters uncertainty that a competent professional could not readily resolve.
Does grant funding prevent an R&D claim?
Not automatically. The accounting period, scheme and terms of the funding must be reviewed. Grant support should not be treated as a simple yes-or-no eligibility test.
Can we claim R&D tax relief and Patent Box?
Potentially. The reliefs address different parts of the innovation lifecycle. R&D relief concerns qualifying expenditure, while Patent Box concerns qualifying relevant IP profits. Each has separate conditions and calculations.
Discuss your renewable energy and cleantech projects
We will help establish whether the work meets the R&D definition, what evidence exists and whether preparing a claim is appropriate. If the projects do not meet the test, we will tell you plainly.