This mode is designed for graduates newly recruited into the doctorate scheme by the University and the sponsoring company. The research engineer will, if eligible, receive the EPSRC maintenance grant, supplemented by a top-up from the sponsoring company. The outline costs are (revised for 2008-2009):

This mode is designed for the participation of company employees in the scheme. The research engineer is employed by the company and receives a full salary. If eligible, an EPSRC grant can be awarded to the engineer as a part contribution to their salary and to cover University fees. The outline costs are (revised for 2008-2009):

The UCL Finance Division guidance is as follows (updated Ocotber 2011):

R&D Tax Credit

R&D tax credit options - Explained

The budget Report in March 2011 made a number of changes to the way R&D tax credits work.

Currently if a company undertakes R&D the cost of that work generally counts as expenditure that is deductible from company profits, reducing their corporation tax bill. The tax credit allows an extra 30% of certain R&D costs to be deducted from the taxable profits figure, reducing the tax bill further. For smaller firms the extra deduction is 75%.   From April 2011 the tax credit for SME’s (less than 500 employees) will be 100% and from April 2012 the extra reduction is 125% - see worked examples.

SMEs can benefit from the scheme even if they are not making profits - many start-ups do not. For example, if £100,000 is spent on R&D, then the SME credit raises that allowance against tax to £200,000. But if the company is not paying tax, the government allows up to 16% of that in cash - £32,000 in this case - to be paid back. A potential limitation is that the company has paid the government an equivalent amount in PAYE and National Insurance contributions. 

SMEs can also claim the credit on costs incurred when they subcontract the R&D work to a third party (eg Universities), but large firms in general cannot. 
Directors of centres, Principal Investigators, Supervisors and BDM’s and Contract Managers should direct potential Funders to Research and Development (R&D) Relief for Corporation Tax. It’s a ‘no-brainer’ invest in your companies future or give to central government and never see it again.
The Inland Revenue has set up a network of R&D Tax Credit units across the country to advise innovative small businesses and assist them to take advantage of the R&D tax credit system - funders should be directed toResearch and Development (R&D) Relief for Corporation Tax for further information. 
Further Information:
Currently, firms have six years to claim the credit (two years for SMEs claiming the cash repayment). The government plans that in future the two year limit will apply in all cases but has not indicated when this will start. It is unlikely that the change will be retrospective. R&D undertaken in 2005, for example, will still qualify for the additional tax deductions until 2011. 
Also the relief at the moment is limited to revenue costs. The government is looking at loosening the rule that excludes capital expenditure which is important because some firms capitalise the costs of drug discovery for example. 
The cost of paying volunteers to take part in clinical trials will become an eligible cost but it is not yet clear when this will take effect.

Recent guidance includes striving for a technological advance by overcoming technological uncertainty. Software remains difficult to define, but if the software development is outside routine or standard practice, then it may fall within this definition of R&D.
Also the relief at the moment is limited to revenue costs. The government is looking at loosening the rule that excludes capital expenditure which is important because some firms capitalise the costs of drug discovery for example. 
The cost of paying volunteers to take part in clinical trials will become an eligible cost but it is not yet clear when this will take effect.
Recent guidance includes striving for a technological advance by overcoming technological uncertainty. Software remains difficult to define, but if the software development is outside routine or standard practice, then it may fall within this definition of R&D.
Recent guidance includes striving for a technological advance by overcoming technological uncertainty. Software remains difficult to define, but if the software development is outside routine or standard practice, then it may fall within this definition of R&D.

How does the R&D tax credit work?

What has changed recently?

What counts as R&D?

Worked Examples.