R&D Tax Credits for UK Cleantech Companies

Cleantech and the Merged Scheme

Cleantech sits at the overlap of engineering, biotech and deep-tech, and UK cleantech companies are typically among the most R&D-intensive claimants. The sector benefits from a policy environment (Net Zero Strategy, Energy Security Strategy, CCUS cluster programmes) that channels public funding alongside private investment. The R&D tax credit regime is a significant part of the total innovation-support package, and the merged scheme's rules materially shape the net benefit.

Under the merged scheme in force from 1 April 2024, cleantechs claim a 20% above-the-line credit regardless of company size, with the net benefit for profitable companies at approximately 15p per £1 after corporation tax. Loss-making cleantechs with R&D at 30% or more of total expenditure qualify for ERIS at a 27% credit rate. The contamination rule that used to penalise grant-funded SME claims is removed, which is a net positive for companies funded through Innovate UK, ARIA, BEIS and UKRI.

Our merged scheme guide covers the mechanics. The grant-interaction detail matters particularly for cleantech and is covered in the grant guide.

What Qualifies in Cleantech

Typical qualifying activities across cleantech subsectors:

• Battery research and engineering: cell chemistry, electrode engineering, electrolyte formulation, BMS design, pack integration, thermal management, second-life applications, recycling process development.
• Hydrogen technology: electrolyser stack design, membrane and catalyst work, fuel cell engineering, storage and compression systems, infrastructure integration.
• Carbon capture, utilisation and storage (CCUS): solvent and sorbent development, process design, integration with industrial emitters, transport and storage engineering, monitoring and verification.
• Solar: cell and module engineering, BIPV, novel balance-of-system components, power electronics and inverter design, tracking and bifacial systems.
• Wind: blade aerodynamics, drivetrain engineering, floating offshore platforms, installation and maintenance technology, digital twin and asset-management work.
• Heat networks, heat pumps and industrial decarbonisation: novel refrigerants, high-lift heat-pump cycles, waste-heat recovery, electrification of industrial process heat.
• EV infrastructure: novel charging architectures, V2G, ultra-fast charging power electronics, grid-edge management.
• Smart grid and energy management: novel DERMS, flexibility platforms, distribution-network automation, bespoke control systems.
• Bioenergy, biofuels and biogas: novel feedstock processing, anaerobic digestion optimisation, sustainable aviation fuel pathways.
• Circular-economy engineering: recycling chemistry for batteries, plastics and critical materials, plus novel sorting and separation technology.
• Water and wastewater innovation: novel treatment chemistry, membrane engineering, low-energy process design.

What Does Not Qualify

• Routine installation of commercially available renewable energy, storage or EV-charging equipment per supplier instructions.
• Standard operation and maintenance of existing renewable assets.
• Commercial project development, financing and off-take negotiation.
• Planning, environmental impact assessment and consenting work.
• Standard grid-connection work to published DNO requirements.
• Commercial procurement and supply-chain work.
• Training, advisory and extension services.
• ESG reporting and carbon accounting to existing standards (PAS 2060, GHG Protocol) without a novel methodology contribution.
• Certification and compliance work against existing standards.
• Sales, marketing and investor-facing work.

Qualifying Costs in Cleantech

Under the merged scheme, cleantech claim pools typically draw from:

Staffing. UK salary, employer NI and employer pension for engineers, scientists, technicians, process leads and test staff supporting qualifying R&D.

Subcontractors and EPWs. UK-only under the merged scheme. UK test houses, UK universities, UK specialist contractors are claimable at the 65% rate for unconnected parties. Overseas subcontractor spend is generally excluded absent the narrow statutory exception.

Consumables. Materials consumed in qualifying trial and test work: test cells, reagents, catalysts, membrane samples, failed prototypes, pilot-plant feedstocks, instrumentation consumables.

Utilities. Power, water, compressed gases, fuel used directly in qualifying R&D testing, apportioned (often material for pilot-plant work).

Software. Simulation, modelling, CFD, FEA, process design, and energy-system modelling software used in qualifying R&D.

Cloud and data. HPC simulation, licensed weather and resource data, grid-data licences. Allowable from April 2023.

HMRC Enquiry Risks in Cleantech

1. Grant-subsidised expenditure. Most cleantechs draw Innovate UK, ARIA or BEIS funding. Subsidised-expenditure rules still apply under the merged scheme. Misclassifying grant-funded spend as self-funded is the single largest enquiry risk.
2. Capital vs revenue. Pilot-plant construction is usually capital. R&D allowances (separate from the R&D credit) may provide 100% first-year relief on qualifying capital expenditure, but the costs cannot be double counted.
3. Overseas partner work. Cleantech consortia often include European research partners. Post-April 2024, their work is generally excluded from the UK claim absent the narrow exception.
4. Advance in field framing. HMRC expects the advance to be framed against global state-of-the-art, not company state-of-the-art. A specialist will cite published literature, patents and competitor product lines to position the advance.
5. Commercial project development. Project development teams working on specific asset deployments (finance, land, planning) are not doing R&D. Including their time is a common error.
6. ERIS intensity denominator. Cleantechs sometimes have substantial non-R&D revenue-generating activity (commercial O&M, consultancy). A clean split between R&D and other costs is required to test the 30% threshold.

Indicative Claim Ranges for Cleantech

Indicative Example: A Battery Pack Developer

A UK battery pack developer with 42 staff has total expenditure of £6.4m for the year to 31 March 2026 and is loss-making. The company runs three concurrent qualifying programmes: a second-generation pack architecture with novel immersion-cooling thermal management; a BMS and balancing algorithm targeting a 30% life-extension at aggressive duty cycles; and a UK-sited second-life module programme reusing EV packs in stationary storage. An Innovate UK grant covered £1.1m of programme cost.

Qualifying review: £3.9m of qualifying expenditure, comprising £2.1m of UK engineering, test and process salary; £620k of UK test-house and UK subcontractor engineering at the 65% rate (contributing £403k to the pool); £480k of prototype consumables, failed cells and instrumentation; £240k of HPC simulation and licensed data; £180k of software licences; and £380k of pilot-plant utilities and materials. Separately, capital expenditure on new test chambers sits in R&D allowances and is pursued in parallel.

Subsidised-expenditure rules apportion the grant-funded £1.1m separately. On the £2.8m self-funded qualifying pool: R&D intensity = £3.9m total qualifying R&D / £6.4m total expenditure = 61%. Above the 30% ERIS threshold. ERIS credit at 27% on the self-funded pool: £2.8m x 27% = £756,000, with the grant-funded portion handled under subsidised-expenditure rules. A specialist will maximise the total relief defensibly.

Next Steps

A 15-minute call with a specialist will scope the qualifying activity, test ERIS eligibility, model the grant-funded vs self-funded split, and give you a defensible claim value. Your accountant stays in the loop throughout. See also our engineering page and manufacturing page.