R&D Tax Credits Explained: 2025 Guide
Everything you need to know about R&D Tax Credits in 2025, including:
- What they are and who's eligible
- How much funding you can access
- Expert tips for filing compliantly
- Deadlines and compliance issues
What are R&D Tax Credits?
The R&D Tax Credits scheme, also known as R&D Tax Relief, is a UK government incentive that rewards companies for investing in cutting-edge research and development work.
The scheme works by reimbursing eligible businesses up to 27p for every £1 they invest in qualifying costs, such as wages and subcontractor fees. Funding is paid as a relief against corporation tax, a cash credit, or both.
Delivering to innovative businesses, this generous scheme consists of four different regimes:
The new merged scheme (aka new RDEC scheme) – applies to accounting periods starting on or after 1 April 2024
Enhanced R&D intensive support (ERIS) – applies to eligible costs incurred or after 1 April 2023
SME R&D Tax Relief – applies to accounting periods starting before 1 April 2024
- The old Research and Development expenditure credit (RDEC) – applies to accounting periods starting before 1 April 2024
To qualify, your company must:
Be registered in the UK
Be liable for corporation tax
Have conducted research and development work that satisfies the government’s definition of qualifying R&D.
You have up to two years after the end of the accountancy period in which you conducted qualifying R&D to submit a claim.
Since its launch in 2000, Research and Development Tax Relief has paid out over £50 billion in financial assistance to thousands of startups, scaleups, and established businesses.
In this guide
How much R&D Tax Relief can I claim?
The R&D Tax Credits scheme lets you claim back up to 27p per £1 you invest in research and development.
That’s the short answer, anyway. Really, how much you can claim will depend on:
Your company’s financial position
Your company’s corporate tax rate
Which scheme you apply to (RDEC, SME, etc)
Below are the relief rates for the four different schemes, separated by the accounting periods and expenditure timings they apply to.
| Financial Position | Merged Scheme | ERIS Scheme |
|---|---|---|
| Profitable | 15% to 16.2% | – |
| Breaking Even | 15% | 12.04% |
| Loss-Making | 15% | 27% |
| Financial Position | SME Scheme | RDEC Scheme | ERIS Scheme |
|---|---|---|---|
| Profitable | 16.34% to 21.5% | 15% to 16.2% | – |
| Breaking Even | 8.6% | 15% | 12.04% |
| Loss-Making | 18.6% | 15% | 27% |
| Financial Position | SME Scheme | RDEC Scheme |
|---|---|---|
| Profitable | 24.7% | 10.53% |
| Breaking Even | 18.85% | 10.53% |
| Loss-Making | 33.35% | 10.53% |
Is my company eligible for R&D Tax Credits?
To be eligible for Research and Development Tax Credits, your company must:
Be registered in the UK
Be liable for corporation tax
Have conducted one or more projects that satisfy the government’s definition of qualifying R&D
Incurred qualifying expenditure as part of those projects
It can be difficult to apply the government’s criteria to your development work, which is why it’s best to request a consultation with a specialist before applying.
However, to give you a quick sense of your eligibility, your company will probably qualify for funding if it answers yes to the following questions.
- Are you subject to UK corporation tax?
- Were you seeking a scientific or technological advance?
- Did you encounter scientific or technological uncertainty?
- Were you making something commercially viable?
- Did you experiment methodically?
- Was your development work overseen by an expert?
Even if you didn’t answer yes to each of these, you might still be eligible. The best way to know for sure is to speak to an R&D Tax specialist like GrantTree.
Our experts can perform a free eligibility assessment, so you can file a claim with confidence. Book your eligibility assessment.
What are the scheme's eligibility criteria?
To file a successful claim for Research and Development Tax Relief, your company and its projects must satisfy the government’s definition of R&D for tax purposes.
This definition refers to concepts, like ‘advance’ and ‘uncertainty’, which can be difficult to apply to real-world R&D.
To simplify things, we have distilled the definition down into three core elements.
Element 1: Your company
To qualify for R&D Tax Relief, your company must be a UK-registered business that is liable for corporation tax.
You don’t need to be paying corporation tax as R&D Tax Relief is open to unprofitable businesses without taxable profits.
However, your business cannot be entirely exempt from corporation tax, as is the case for LLPs and sole traders.
Element 2: Your R&D projects
Explaining what a project is and how it relates to the government’s definition of qualifying R&D is where things get complicated.
We’ve taken things slowly and used plenty of examples. However, if, after reading this section, you are still unsure whether your project qualifies, do get in touch. Our experts would be happy to confirm where you stand.
The government says that companies’ research and development work consists of one or more ‘projects’. A project is essentially a collection of activities that directly or indirectly contribute to achieving a scientific or technological advance, by overcoming a scientific or technological uncertainty. More on qualifying activities in the next section.
A scientific or technological advance is an increase in the overall knowledge or capabilities of a particular field. It is more than the application of scientific or technical concepts; it’s the creation of something entirely new, be it tangible (e.g. a product or feature) or intangible (e.g. process improvements).
A project begins when, in looking to achieve your advance, you encounter a scientific or technological uncertainty.
An uncertainty is where your competent professional cannot readily deduce how to achieve the advance, or indeed whether the advance is even possible.
A competent professional is someone with significant expertise in the field in which you’re conducting R&D. They must be knowledgeable about the scientific and technological principles involved, aware of the state of the art in their field, and recognised as having a successful track record in the relevant areas. To qualify for R&D Tax Credits, your projects must be led by a competent professional.
If your competent professional cannot deduce a solution to your scientific or technological uncertainties, there is only one way to move your R&D forward: experimentation.
The government requires companies to experiment methodically. To try one solution, record the results, gain insights, reassess, try another solution, and so on. Subsequently, unstructured experimentation and ‘stabs in the dark’ are not part of valid R&D.
Element 3: Activities within those projects
Projects are made up of qualifying activities. There are two kinds of qualifying activity: direct and indirect.
Direct activities
Direct activities contribute to achieving an advance by attempting to resolve an uncertainty. They are:
Creating or adapting software, materials or equipment for use in R&D
Scientific or technological planning
- Scientific or technological design, testing and analysis
Indirect activities
Certain activities which do not contribute to resolving an uncertainty but form part of an R&D project are eligible for R&D Tax Credits. They are:
Information services that support research and development, such as reporting R&D findings
Supporting activities, including maintenance, security, administration, clerical work, and financial and personnel management
Essential ancillary activities such as leasing laboratory space and recruiting staff
Training
Research carried out by students or at universities
Research to devise new testing methods
Feasibility studies to inform the direction of R&D activity
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R&D Tax Relief Changes in 2025 (merged scheme, ERIS & subcontracting rules)
The UK’s R&D Tax Relief system has undergone major reforms that will impact companies in 2025. Below is a summary of the key developments. For a more complete breakdown, head over to our detailed blog.
The new (merged) RDEC scheme
From April 2024, most companies must claim under the new R&D Expenditure Credit (RDEC) scheme, also called the merged scheme.
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The merged scheme largely mirrors the old RDEC regime.
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It applies to accounting periods starting on or after 1 April 2024.
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Companies can access a credit worth 15%–16.2% of qualifying R&D expenditure.
ERIS: R&D intensity threshold falls from 40% to 30%
The enhanced R&D intensive support (ERIS) scheme has been made more accessible.
To qualify, companies must now spend at least 30% (previously 40%) of total outgoings on qualifying R&D.
This applies to accounting periods starting on or after 1 April 2024.
ERIS offers a higher cash credit rate for loss-making, R&D-intensive SMEs.
New rules for subcontracted R&D
New rules have clarified how subcontracted development work is treated when it comes to R&D Tax Relief.
The new rules specify who, between a company and its contractor, can claim for subcontracted work.
They also address situations where companies have financial years covered by different sets of R&D legislation.
Restrictions on overseas subcontractors and EPWs
From April 2024, new restrictions apply to overseas costs:
Subcontractors: If the R&D takes place outside the UK, costs are not eligible (with limited exceptions).
Externally Provided Workers (EPWs): Relief is only available where EPWs are subject to UK PAYE and NIC.
There are some exceptions to this. Learn more about the overseas subcontractor and EPW restrictions.
Subsidised project restrictions removed
The government has removed limitations on claiming R&D Tax Relief on projects that have other types of state funding. This means, for example, grant winners will no longer be prevented from more generous rates of R&D Tax Relief.
R&D Tax Changes - The Complete Guide
Navigate the key changes that will impact your claim this year with GrantTree’s free and comprehensive guide.
Benefits and features of R&D Tax Credits
Receive a cash injection
Accessible funding
Gain a competitive edge
Fast turnaround
Maintain control
Two-year window
Which costs are eligible for R&D Tax Credits?
There are ten types of R&D costs that qualify for R&D Tax Relief. These include staff wages, cloud computing costs and subcontractor fees. Below is a complete list of expenditure you can claim for under the UK’s R&D Tax Relief scheme.
| Cost | Description | Maximum Relief |
|---|---|---|
| Direct Staff Costs | Includes Salaries, Class 1 NIC and pension contributions for staff directly involved in R&D | 100% |
| Externally Provided Workers (Unconnected)1 | Temporary workers sourced from an external agency | 65% |
| Subcontracted R&D (Unconnected)1 | Projects or pieces of work outsourced to an external company | 65% |
| Consumables | Materials and resources consumed in the R&D process | 100% |
| Software | Software that is directly employed by eligible R&D activities | 100% |
| Clinical Trial Volunteers | Payments made to volunteers in clinical trials are eligible | 100% |
| Contribution to Independent Research2 | Payments made to other companies carrying out eligible R&D | 100% |
| Prototypes3 | Costs associated with the design and construction of prototypes needed to test your development work | 100% |
| Cloud Costs4 | Purchasing cloud computing solutions | 100% |
| Data Licenses4 | Cost for accessing and using a collection of digital data | 100% |
1 Most payments for overseas contractors and externally provided workers no longer qualify for R&D Tax Relief. This change affects accounting periods starting on or after 1 April 2024. Read more about these rules and the exceptions to them in our detailed blog.
2 Contributions to independent research cannot be claimed under the SME or ERIS schemes.
3 Prototype costs are only eligible if the prototype is used for R&D testing. If it’s built with the intention of being sold, only the R&D-related costs can be claimed.
4 To qualify for relief, cloud and data costs must be incurred in an accounting period starting on or after 1 April 2023.
Which costs don't qualify?
Any costs not listed above aren’t eligible for R&D Tax Credits. This means that you can’t claim relief on:
Commercial activities to get a product to market
Producing and distributing products and services
Land
Creating a patent or using a third party’s patent
Capital expenditure. Although companies can claim capital expenditure in certain circumstances
Are R&D Tax Credits the best way to fund my project?
R&D Tax Relief has a range of advantages over other forms of research funding. Most notably, it’s open to all industries, not just those on the cutting edge of technology.
Another advantage: R&D Tax Relief is usually paid out pretty quickly, with HMRC aiming to process 85% of payable claims within 40 days.
Research and Development Tax Relief is likely one of the best ways to fund your innovation, with the only limiting factors being the eligibility criteria, your application’s compliance with HMRC regulations, and your ability to maximise your claim size. That’s where we can help.
GrantTree’s specialists have years of experience building successful, fully compliant claims. We know what works and what doesn’t.
Most importantly, we take the stress out of applying to the scheme so you can focus on expanding your team, developing new products and services, and reaching new customers.
How to claim R&D Tax Relief in 2025
Claiming R&D Tax Relief can be a long and complex process. To give you a sense of what’s involved, we have mapped out the seven steps involved in preparing a compliant claim.
1. File your claim notification form
Most companies have to file a claim notification form before submitting their R&D Tax Relief claim.
You may have to file the form if you
Filed previously, but with an amended return
Last filed more than 3 years ago
Have never filed for R&D Tax Relief before
Are you filing more than 6 months after the end of your accounting period
2. Select your projects
The first thing you’ll need to do when building your claim is to identify which projects you will include in your claim.
Each project must meet the government’s definition of qualifying R&D and consist of eligible activities.
3. Work out which scheme to apply to
Next, you must determine whether you are eligible for:
The scheme you apply to will affect which costs you can include in your claim and how much funding you can access.
4. Calculate your claim size
Once you’ve worked out which scheme you’re applying to, it’s time to calculate your ‘total qualifying expenditure’.
First, identify all of your qualifying costs.
Apportion them to your qualifying projects, then work out how much of each one you can claim under the scheme you’re applying to.
What you do next depends on which scheme you’re applying to.
If you’re applying to the SME or enhanced R&D expenditure schemes, you will apply the enhancement mechanism, which will artificially increase the value of your qualifying expenditure.
If your company is profitable, enhancement will decrease your profitability, reducing your corporation tax liability.
If you’re unprofitable, it will increase your loss. You can surrender your loss for a cash credit, or carry it forward to offset against future corporation tax.
If you’re applying under RDEC or the new RDEC (aka merged) scheme, you’ll receive a cash credit worth 10.53% to 16.2% of your qualifying expenditure.
5. Complete your additional information form
As of 8 August 2023, all companies will must file an additional information form (AIF). Those that don’t will see their claims rejected.
In this form, you need to enter a range of information about your development work and company, including:
What scientific and technical advances you were seeking
What uncertainties you encountered
Your project costs broken down by the nine categories of qualifying expenditure
How much you spent on indirect qualifying activities
- Contact details for the person at your company responsible for your R&D
You don’t necessarily have to provide this information on all of your projects; it depends on how many projects you conducted during your claim period.
HMRC will not process your claim until they have received your additional information form, so make sure you file it before your Company Tax Return.
6. Update your CT600
Next, update your CT600 with your top-line financial calculations.
How you do this depends on which scheme you’re claiming through and whether you’re claiming corporate tax relief or a payable tax credit.
7. File your claim
Finally, file your claim, including the additional information form, with HMRC.
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Tips for filing a compliant R&D Tax Relief claim
Here are a few tips for making sure you claim is compliant while securing your full entitlement to relief.
1. Record your R&D challenges as they happen
Keep a running log of any issues and obstacles in your development work you faced during your development work. Doing this once a quarter should be sufficient.
Management-hosted check-ins with the development team are a great way to do this. In addition to talking about progress and the business generally, management can enquire about challenges and failures.
2. Track staff and materials
It’s important to track every hour and resource unit invested in your R&D project, as having complete, well-maintained records will help you capture all eligible costs, making the claim process smoother and faster.
3. Account for every penny
How much relief your company receives depends, to a large degree, on your claim size. So, important to account for every penny of eligible expenditure.
You can do this by going through your outgoings and checking which are eligible. Make sure you cover your costs for utilities, consumables and all staff that were involved in the project, including those involved in eligible indirect activities.
4. Work in your accounting period
It’s important to always work within your company’s accounting period, not HMRC’s tax year. Expenses outside the accounting period or periods you’re working in aren’t eligible in that year’s claim.
5. Balance your technical data and costs
It’s beneficial to tie the amount of information you provide about your project in your additional information form to how much it cost. The more the project cost, relative to other projects, the more you should write about it.
6. Double, triple, quadruple check!
Finally, before you file, go through your claim with a fine-toothed comb and check that all your calculations can be matched back to your P&L, tax computations and CT600.
There’s no bigger red flag for HMRC than numbers not adding up! All costs must be matched and consistent so that HMRC to identify which costs are located where.
How long does it take to receive R&D Tax Credits?
HMRC aims to process 85% of claims within 40 days.
In reality, processing times can range anywhere from a few weeks to several months. If your claim is approved, it will take a further 20 days for your funds to reach your account.
In total, you could be waiting up to 120 days from the day you file your claim to receive your R&D Tax Credits.
A number of factors can increase HMRC’s processing time:
The time of year – HMRC is particularly busy after April, when the tax year ends
The complexity of your claim – if it’s especially large or includes many projects.
If HMRC opens an R&D Tax enquiry, aka a compliance check
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With GrantTree’s unique R&D Advance Funding service, we could advance you up to 80% of your future R&D Tax Credit up to six months before your financial year-end.
Can anything go wrong?
Most R&D Tax Credit claims are processed successfully and without any issues. This is especially true when you work with experts like GrantTree.
However, if you made a mistake or claim for something you shouldn’t have, HMRC may launch an R&D enquiry. This is officially known as a compliance check.
What is an HMRC enquiry?
An enquiry is an audit of your R&D Tax Credit claim, designed to identify and exclude any ineligible projects and costs.
Enquiries generally happen when the tax inspector reviewing your submission believes something in your claim is ineligible for relief. Some are launched at random, under HMRC’s Mandatory Random Enquiry Programme (MREP).
What happens during an enquiry?
To clear up their concerns, your inspector will write to you with a list of questions designed to collect more financial and technical data about your R&D.
Over the course of your enquiry, you can expect to answer multiple rounds of detailed questions. You will primarily do this in writing, however HMRC may ask you to discuss your claim on a conference call or at an in-person interview.
What are the outcomes of an enquiry?
The back-and-forths with HMRC will delay your funding by several months. But the impacts of enquiry reach far beyond delays.
For starters, dealing with an enquiry can embroil your technical and financial teams in lengthy back-and-forths with tax inspectors. It may also damage your relationship with HMRC and reduce your credit amount.
As well as the risk of reducing your R&D funding amount, it’s also possible that HMRC will reject your claim following an enquiry.
In worst-case scenarios, HMRC could also find you guilty of negligence or deliberately claiming fake expenses, which can result in a hefty fine.
How to protect yourself from an enquiry
Because of these dangers, it’s vital that your R&D Tax Credits claim is fully justified and compliant with all the latest regulations.
The easiest way to achieve this is to work with a consultant like GrantTree.
We have the knowledge and experience to build a watertight claim that minimises your risk of an enquiry while increasing the speed of your payout.
Get in touch to find out more about how we can help you.
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R&D Tax Credits - Frequently Asked Questions
You can claim R&D Tax Credits up to two years after the end of the accounting period in which your eligible development work took place.
Read more: What is the Deadline for R&D Tax Claims?
When it comes to R&D Tax Relief, failure is an option.
HMRC’s definition of qualifying R&D activity says nothing about “success”. In fact, failure can actually help your claim because it demonstrates that you encountered a scientific or technological uncertainty – a key part of the government’s definition of qualifying R&D.
Even if your project is successful, it’s still important to show HMRC that you faced challenges during your development work.
Some companies think they can’t receive grants and R&D Tax Credits for the same work. Thankfully, this isn’t true.
There are various kinds of grants available, but none of them will prevent your company from claiming R&D Tax Credits.
However, winning a grant could impact how much funding you can claim through the R&D Tax Credits scheme and your eligibility for SME R&D Tax Relief.
The RDEC scheme is not a form of government grant. However, it is a form of government funding.
RDEC is one of two schemes that make up R&D Tax Relief. Like its partner scheme, SME R&D Tax Relief, RDEC is a form of corporation tax relief paid to companies that conduct eligible development work.
Making a mistake in your claim – even a small one – significantly increases your chances of facing an HMRC enquiry. This is where a tax inspector investigates the accuracy and eligibility of your claim.
Facing an enquiry will delay your relief or cash credit, could lead to your claim size being reduced, and may even result in a hefty fine for your business.
Read more: HMRC R&D Enquiries: What They Are & How to Respond
Sole traders cannot claim R&D Tax Credits.
R&D Tax Credits are only open to businesses that are liable for UK corporation tax. Sole traders do not pay corporation tax. As a result, they are ineligible for the scheme.
No, universities cannot claim R&D Tax Relief.
Universities and other not-for-profit organisations could claim R&D Tax Credits until 2015. However, the government decided to withdraw their access to this programme to ensure it remained “effective and well-targeted to business Research and Development.”
Charities cannot claim R&D Tax Relief.
Charities and other not-for-profit organisations were previously able to claim R&D Tax Credits through RDEC. But the government withdrew this facility in 2015 to “ensure that the scheme remains effective and well-targeted to business Research and Development.”
No. LLPs do not qualify for R&D Tax Credits directly.
R&D Tax Relief is only open to companies that are liable for UK Corporation Tax. As LLPs are exempt from corporation tax, they cannot claim R&D Tax Relief.
However, LLPs can claim R&D Tax Credits if they are in a partnership with another company that is liable for corporation tax.