R&D Tax Credits (UK): What They Are, Who Qualifies & How to Claim
Last updated: February 2026
The R&D Tax Relief scheme (also known as R&D Tax Credits) remains one of the most valuable sources of non-dilutive funding for UK companies investing in innovation.
However, a string of recent reforms, including the introduction of a merged scheme, have made the rules far more complex. At the same time, increased HMRC scrutiny means a growing number of claims are now subject to compliance checks (also known as enquiries).
This has created a huge amount of uncertainty, and left many businesses unsure how to claim safely.
Written by GrantTree’s R&D Tax Relief specialists, this guide explains how the scheme works under the current rules, covering who can claim, which costs are eligible for relief, and how to submit a compliant claim.
If you need extra help getting your claim filed in time and meeting HMRC’s exacting standards, our R&D Tax experts are here to help.
Calling on 15 years of experience filing compliant claims, we can help you to:
Identify qualifying R&D activity
Prepare robust financial and technical documentation that stand up to HMRC scrutiny
Submit a compliant claim that meets HMRC’s expectations
Contents
What are R&D Tax Credits?
R&D Tax Credits, also known as R&D Tax Relief, are a UK government tax incentive designed to encourage companies to invest in research and development work by reducing their corporation tax bill or providing a payable credit.
At a high level, the scheme works by allowing eligible companies to recover a proportion (up to 27%) of the costs they incur on qualifying research and development (R&D) activities. This includes costs such as staff wages, subcontractor fees, and consumables. Depending on your circumstances, relief may be paid as a reduction in corporation tax, a cash payment, or both.
R&D Tax Relief is available to UK companies that are subject to corporation tax and carry out projects seeking an advance in science or technology. To qualify, a project must look to overcome scientific or technological uncertainty and be undertaken by a competent professional.
R&D Tax Relief is made up of multiple schemes. Which one applies depends on when your costs were incurred, and other factors such as your company’s size. We explain each scheme and which one you will need to apply to in more detail later in the guide.
In most cases, the deadline for submitting an R&D Tax Relief claim is two years after the end of the accounting period in which your qualifying R&D took place. You may also need to submit a claim notification form before you file your claim.
Since its launch in 2000, Research and Development Tax Relief has paid out over £50 billion to startups, scaleups, and established businesses investing in innovation.
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 carried out one or more projects that meet HMRC’s definition of qualifying R&D
Have incurred qualifying expenditure
It can be difficult to apply HMRC’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 likely qualify if it answers yes to the following questions.
- Were you seeking a scientific or technological advance?
- Did you encounter scientific or technological uncertainty?
- Did you experiment methodically?
- Was your development work overseen by an expert?
Even if you didn’t answer yes to every question, you may still be eligible for R&D Tax Relief.
How HMRC defines R&D for tax purposes
To claim Research and Development Tax Relief, your company and its projects must satisfy HMRC’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 make things easier, HMRC’s definition can be distilled into three core elements.
Element 1: Your company
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
HMRC says that a company’s research and development work consists of one or more projects. These are the building blocks of your claim.
What is a project?
For R&D Tax purposes, a project is a collection of activities undertaken to achieve a scientific or technological advance by resolving a scientific or technological uncertainty
Scientific and technological advances
A scientific or technological advance is an increase in the overall knowledge or capabilities of a particular field.
An advance is more than the routine of existing knowledge. It is the creation of something entirely new, whether tangible (such as a product or feature) or intangible (e.g., a process improvement).
Scientific and technological uncertainty
According to HMRC, a project begins when, while working towards an advance, you encounter a scientific or technological uncertainty.
An uncertainty occurs when a competent professional cannot readily deduce how to achieve the advance, or whether the advance is possible, using their experience or publicly available knowledge.
Competent professional
A competent professional is someone with significant expertise in the field in which you’re conducting R&D.
They must:
Understand the scientific and technological principles involved
Be aware of the state of the art in their field
Be capable of recognising whether a solution is readily deducible
To qualify for R&D Tax Credits, a project must be led by a competent professional.
Methodical experimentation
Once you have encountered an uncertainty, you need to conduct a structured and systematic approach to resolve it.
This usually involves:
- Identifying possible solutions
- Testing those solutions
- Recording and analysing the results
- Iterating new possible solutions based on your analysis
Unstructured trial-and-error and ‘stabs in the dark’ do not meet HMRC’s definition of qualifying R&D.
Element 3: Activities within those projects
Qualifying projects are made up of specific activities. There are two kinds of activities that satisfy HMRC’s definition of qualifying R&D: direct activities and indirect activities.
Direct activities
Direct activities contribute directly to achieving a scientific or technological 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
Indirect activities do not contribute to resolving an uncertainty but still qualify for relief when undertaken as part of an eligible project. 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
Summary
Your company must be eligible
Your projects must meet HMRC’s definition of R&D
Your projects must consist of qualifying direct and indirect activities
Check Your Eligibility
Get an assessment in under two minutes with our R&D Eligibility Quiz.
Which scheme applies to my business?
R&D Tax Relief operates under multiple schemes, with the one that applies depending on factors like the size of your company and what accounting period you’re claiming for.
This section explains which scheme applies and how to determine the correct one for your claim.
The four R&D Tax Relief schemes
There are four R&D Tax Relief schemes currently relevant to UK companies:
The merged scheme, also known as the new R&D expenditure credit
One of the main differences between these schemes is the accounting period they apply to.
The SME scheme and the former RDEC scheme apply only to accounting periods beginning before 1 April 2024. However, depending on when your R&D took place, you may need to submit claims under these older regimes.
The table below summarises which accounting periods each scheme applies to and the headline rates available.
| Regime | Relief Available | Applies To |
|---|---|---|
| Merged scheme | 15% – 16.2% | Accounting periods starting on or after 1 April 2024 |
| ERIS | 12.04% – 27% | Expenditure incurred on or after 1 April 2023 (for qualifying R&D-intensive SMEs) |
| Old RDEC scheme | 10.53% | Accounting periods starting before 1 April 2024 |
| SME R&D Tax Relief | 18.85% – 33.35% | Accounting periods starting before 1 April 2024 |
For most companies that incurred costs from April 2024 onwards, the merged scheme will apply. However, you may be able to claim more relief under ERIS if you qualify as R&D intensive.
Next, we’ll look at each scheme in more detail, including its eligibility criteria.
The merged RDEC scheme (from 1 April 2024)
The merged R&D expenditure credit (RDEC) applies to accounting periods beginning on or after 1 April 2024.
The ‘merged’ refers to the fact that it was launched to replace the former RDEC and SME R&D Tax Relief schemes with one regime. As a result, most companies incurring qualifying R&D expenditure from April 2024 will claim under this scheme.
The merged scheme is largely based on the old RDEC scheme. For instance, it offers a payable credit that is recognised in a company’s profit and loss account. It also includes some elements of the SME scheme, including a more generous PAYE/NIC cap, which limits payable credits for loss-making companies.
Enhanced R&D intensive support (from 1 April 2023)
Enhanced R&D-intensive support (ERIS) applies to qualifying expenditure beginning on or after 1 April 2023. It is available to loss-making SMEs that qualify as R&D-intensive and provides a more generous credit rate than the standard merged scheme; up to 27% vs up to 16.2%.
R&D intensity refers to the percentage of a company’s total spending that goes on qualifying R&D expenditure. For accounting periods beginning before 1 April 2024, a company must have R&D expenditure of at least 40% of its total expenditure. For periods beginning on or after 1 April 2024, the R&D intensity threshold has been reduced to 30%.
SMEs that do not meet the R&D intensity threshold will not qualify for ERIS. If they are claiming for an accounting period beginning on or after 1 April 2024, they will claim under the merged scheme. If they are claiming for an accounting period beginning before 1 April 2024, they will claim under the SME R&D Tax Relief scheme.
SME R&D Tax Relief (before 1 April 2024)
SME R&D Tax Relief applies to accounting periods starting before 1 April 2024.
The scheme works by enhancing a company’s qualifying expenditure by:
130% – expenditures incurred before 1 April 2023
86% – expenditures after 1 April 2023
If a company is profitable, the enhancement mechanism lowers its corporation tax liability by reducing its taxable profits.
If a company is loss-making, it can surrender the enhanced loss for a payable credit. The surrender rate is worth:
14.5p per £1 of surrendered loss – expenditures incurred before 1 April 2023
10p per £1 of surrendered loss – expenditures incurred after 1 April 2023, unless you qualify for ERIS
To claim under the SME scheme, a company must meet the definition of a small or medium-sized enterprise (SME) for tax purposes. An SME is defined as a company that has:
Fewer than 500 employees and
Either
- An annual turnover not exceeding €100 million
- Or a balance sheet not exceeding €86 million
If you are linked or partnered to other businesses, you may need to include their headcounts and finances in this calculation.
These figures are in Euros because this definition of an SME was established under the European Union’s state aid rules.
Research and Development Expenditure Credit (before 1 April 2024)
The Research and Development Expenditure Credit (RDEC) applies to accounting periods beginning before 1 April 2024.
It is open to large companies and SMEs that performed qualifying R&D that is not eligible for SME R&D Tax Relief. One common reason why an SME’s work would be ineligible for SME R&D Tax Relief is that it was funded with a government subsidy, such as an innovation grant.
RDEC offers an “above-the-line” taxable credit, meaning it is recognised in a company’s profit and loss account.
Unlike the SME scheme, RDEC does not increase a company’s qualifying investment via enhancement. Instead, it offers a credit worth a fixed percentage of a company’s qualifying expenditure.
The headline rates are:
13% of a company’s qualifying expenditure incurred before 1 April 2023
20% for expenditures incurred on or after 1 April 2023
Because RDEC is an above-the-line credit, it is subject to corporation tax. After tax, the credit is worth:
10.53% – before April 2023
Up to 16.2% from April 2023, depending on a company’s corporation tax rate
How to work out which scheme applies to you
To work out which scheme applies to your company, you will need to consider the following factors.
Which accounting period are you claiming for?
If it begins on or after 1 April 2024, you will claim under the merged scheme. Loss-making R&D-intensive SMEs can apply for additional relief under ERIS.
If it begins before 1 April 2024, you’ll claim under:
The RDEC scheme, if you are a large company or SME ineligible for the SME scheme
SME R&D Tax Relief – most SMEs
ERIS – if you are a loss-making, R&D-intensive SME
Do you qualify as an SME?
SME status is determined by the company size test, which considers:
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Employee headcount
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Turnover
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Balance sheet total
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Connections to other companies
If you qualify as an SME, you will be eligible for:
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SME R&D Tax Relief (depending on your accounting period)
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The old RDEC scheme (if you are claiming for work that is ineligible for SME R&D Tax Relief)
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ERIS (if you are R&D intensive, loss-making and claiming for costs incurred after 1 April 2023)
If you are a large company, you will need to claim under:
-
The merged scheme if your accounting period starts after 1 April 2024
-
The old RDEC scheme, if it starts before 1 April 2024
Are you a loss-making, R&D-intensive SME?
Enhanced R&D intensive support (ERIS) is available to loss-making SMEs that meet the R&D intensity threshold.
R&D intensity is calculated by dividing qualifying R&D expenditure by total company expenditure.
The intensity threshold is:
40% (accounting periods starting before 1 April 2024)
30% (periods started on or after 1 April 2024)
Was your R&D subsidised? (accounting periods starting before 1 April 2024)
If you are an SME and claiming for an accounting period that began before 1 April 2024, you will need to consider whether your work was subsidised.
Certain subsidies, such as grants, are categorised as notified state aid. This means they are regulated by the European Commission.
If your project or projects were funded with notified state aid, you will need to claim them under the old RDEC scheme instead of SME R&D Tax Relief.
State aid rules do not affect claims for accounting periods starting on or after 1 April 2024.
The presence of subcontracted R&D (accounting periods starting before 1 April 2024)
If you are claiming for an accounting period starting before 1 April 2024, you will also need to consider rules around subcontracted R&D. They are:
SMEs could claim up relief on 65% of the costs of subcontracting R&D, so long as the SME and contractor are not connected
SMEs can claim R&D Tax Relief on work they’ve been subcontracted to perform by a larger company. However, they must claim this work under the RDEC scheme
Large companies cannot claim R&D Tax Relief on work contracted to limited companies
Large companies can claim under the RDEC scheme for work contracted to charities, health service bodies, individuals and partnerships, research organisations, and universities
Claims for accounting periods beginning on or after 1 April 2024 are affected by a new set of contractor rules.
As you can see, there is a range of factors determining which scheme – your schemes – you need to apply to. While occasionally confusing, this is a vital piece of the puzzle that is claiming R&D Tax Relief.
Next, let’s look at which costs are eligible for R&D Tax Relief.
Which costs are eligible for R&D Tax Credits?
R&D Tax Relief is available on specific categories of expenditure incurred during qualifying research and development activities.
These categories are defined in HMRC’s guidance and apply to the ERIS, merged R&D, SME and old RDEC schemes.
The table below summarises the main types of expenditure that may qualify, alongside the proportion of each cost that is eligible for R&D Tax Relief.
| Cost | Description | Eligible Portion of Cost |
|---|---|---|
| Staff Costs | Salaries, employer Class 1 NIC and pension contributions for employees engaged in qualifying R&D (directly or indirectly) | Up to 100% |
| Externally Provided Workers (Unconnected)1 | Workers supplied by an external agency and working under the company’s supervision | 65% under SME scheme (pre-April 2024); different rules apply under the RDEC, ERIS and merged schemes |
| Subcontracted R&D (Unconnected)1 | Qualifying R&D activities subcontracted to an external company | 65% under SME scheme (pre-April 2024); entitlement differs under the RDEC, ERIS and merged schemes |
| Consumables | Materials, components, utilities and other items consumed or transformed during R&D | Up to 100% (where not incorporated into products sold) |
| Software | Software directly used in qualifying R&D activities | Up to 100% (subject to apportionment) |
| Clinical Trial Volunteers | Payments made to volunteers participating in qualifying clinical trials | Up to 100% |
| Contributions to Independent Research2 | Payments to qualifying bodies undertaking relevant independent research | Up to 100% (subject to statutory limits) |
| Prototypes3 | Costs of designing and constructing prototypes used to resolve scientific or technological uncertainty | Up to 100% (where not sold or commercially exploited) |
| Cloud Computing4 | Cloud storage and computing services used directly in qualifying R&D | Up to 100% |
| Data Licences4 | Costs of acquiring or accessing data used directly in qualifying R&D activities | Up to 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 scheme and 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 do not qualify for R&D Tax Relief?
Any costs not listed above aren’t eligible for R&D Tax Credits. This means that companies cannot 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
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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.
Relief is calculated as a percentage of your qualifying R&D costs. The percentage you receive depends on:
Whether you are profitable or loss-making
Which R&D scheme applies (ERIS, merged, etc)
- Your corporation tax rate
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 | Enhanced R&D intensive support (ERIS) |
|---|---|---|
| Profitable | 15% to 16.2% | – |
| Breaking Even | 15% | 12.04% |
| Loss-Making | 15% | 27% |
| Financial Position | SME Scheme | RDEC Scheme | ERIS |
|---|---|---|---|
| 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% |
How to claim R&D Tax Relief under the current rules
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 six steps involved in preparing a claim that is compliant with the latest legislation.
1. File your claim notification form
Most companies have to file a claim notification form (CNF) before submitting their R&D Tax Relief claim.
You will need to file a CNF if:
You are claiming R&D Tax Relief for the first time
You have not made an R&D Tax Relief claim in any of the previous three accounting periods
In some cases, a CNF is required if you have filed a claim within the last 3 years.
The deadline for the CNF is 6 months after the end of the accounting period you are claiming for. If you miss this deadline, you will not be allowed to claim relief for that 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 HMRC’s definition of qualifying R&D and consist of eligible activities.
3. Work out which scheme to apply to
Next, you must determine which scheme you are eligible for, you are eligible for. This will affect how much relief you are entitled to and which costs you can claim relief on.
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 ERIS schemes, you will apply the enhancement mechanism, artificially increasing the value of your qualifying expenditure.
If you’re applying under the old RDEC scheme or the new 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 must file an additional information form (AIF).
HMRC will not process claims without an AIF, which must be submitted before or at the same time as your Company Tax Return.
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
6. File Your Claim
Finally, complete your CT600 with your top-line R&D Tax Relief 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.
Then submit it alongside your additional information form.
Tips for filing a compliant R&D Tax Relief claim
With HMRC applying stricter scrutiny to R&D Tax Relief submissions, it’s never been more important to make sure your claim is compliant with the latest legislation. Below are our experts’ tips for preparing a submission that aligns with the tax authority’s guidance and stands up to review.
1. Record your R&D challenges as they happen
- What advance you were seeking
- The uncertainties you faced
- How you experimented to overcome the uncertainties
2. Track staff and materials carefully
Tracking the amount of time employees spend on R&D projects can save you a lot of time and guesswork when it comes to putting together your claim. This will also help you if your claim is enquired.
The same goes for materials used during the R&D process.
3. Account for every penny
How much relief your company receives depends, to a large degree, on your claim size. So, it’s essential that you identify every penny of qualifying 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.
What is the deadline for claiming R&D Tax Relief?
The deadline for claiming R&D Tax Relief is generally two years after the end of the relevant accounting period. If you miss this deadline, you won’t be able to claim relief.
In rare situations, HMRC will accept late claims if you experience circumstances beyond your control. However, you should not expect to benefit from these exceptions.
Claim notification form (CNF) deadline
In addition to the two-year claim deadline, some companies must submit a claim notification form (CNF) before making an R&D Tax Relief claim.
You will need to file a CNF if:
You are claiming R&D Tax Relief for the first time
Or you have not made a valid R&D Tax Relief claim in any of the previous three accounting periods.
You may also need to file a CNF if you have claimed by amending your company tax return.
The deadline for the CNF is 6 months after the accounting period in which your qualifying R&D took place.
HMRC will not accept claims where a CNF is required but submitted after the deadline.
How long does it take to receive R&D Tax Credits?
HMRC aims to process 85% of claims within 40 days.
In practice, 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 affect how long HMRC takes to process a claim, including:
The time of year – HMRC is usually busier after the end of the tax year in April
The complexity and the size of your claim
- Whether HMRC opens a compliance check, commonly known as an enquiry
If HMRC opens an enquiry, it will generally delay the payment of your relief until the investigation has concluded.
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What are the risks of an inaccurate R&D Tax Relief claim?
Most R&D Tax Relief claims are processed without issue.
However, if you make a mistake or deliberately look to obtain funding that you’re not entitled to, there are a range of measures HMRC can take to protect the scheme.
Consequences of errors in R&D Tax Relief claims
If HMRC suspects that your claim contains ineligible costs or projects, the most likely outcome is a compliance check, commonly known as an enquiry.
Enquiries are formal investigations designed to determine a claim’s eligibility for R&D Tax Relief. They look at whether the costs and projects in your claim meet HMRC’s strict criteria for qualifying research and development work.
Enquiries generally last six to 12 months, but can take multiple years if you can’t effectively answer HMRC’s questions.
The number of compliance checks has increased dramatically in recent years. According to HMRC figures, one in five claims now undergo an enquiry.
What happens during a compliance check
- Timesheets
- Detailed technical data
- Information about your competent professionals
- 1-3 additional rounds of written questions
- One or more interviews with an inspector
- Potential escalation to Alternative Dispute Resolution (ADR)
- Referral to a tax tribunal (in very rare cases)
What are the possible outcomes of a compliance check?
- Reject specific costs or projects, reducing your claim size
- Reject your claim entirely
- Open investigations into your previous claims, going back up to seven years
- Increase the amount of scrutiny on your future claims
- Institute fines and other penalties, if HMRC concludes you knowingly submitted false information
How to reduce your risk of an R&D enquiry
- Ensuring you aren’t claiming for any non-qualifying costs or projects
- Making sure your apportionments are accurate, fair and justifiable
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Having technical experts prepare the relevant portions of your additional information form
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Demonstrating the relevance and suitability of your competent professionals
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Ensuring the figures in your claim tally with those in your company tax return
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Signposting advances and uncertainties
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Avoiding, where possible, jargon that a non-technical person would not understand
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Framing your work in terms of scientific and technological challenges, rather than commercial challenges
Recent reforms to R&D Tax Relief
The UK’s R&D Tax Relief system has undergone major reforms that will impact companies in 2026. 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.
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Frequently asked questions about R&D Tax Relief
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.
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.