Do you know the Research and Development (R&D) tax scheme is one of the UK government’s most valuable reliefs for investing in innovation? It is designed for reward companies that take on projects to solve scientific or technological uncertainty. This scheme reduces Corporation Tax liabilities by providing a cash credit that helps to manage the cost of developing new products, processes, or services.
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In recent years, this system has changed significantly. Since April 2024, a single scheme has replaced the previously separate SME and R&D Expenditure Credit (RDEC) schemes. So, now all companies can claim an above-the-line R&D Expenditure Credit at 20% of qualifying spend. Even loss-making and R&D-intensive SMEs get extra support through a separate Enhanced R&D Intensive Support  (ERIS).
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At TAJ Accountants, we break down how the R&D tax scheme operates today to determine how your business stands to benefit.
What is the R&D Tax Scheme?
Research and Development (R&D) Tax Scheme is a UK government tax relief that encourages businesses to invest in innovation. It supports eligible companies’ work on innovative science and technology projects.
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Limited companies can claim tax credits by deducting a percentage of their allowable R&D expenses.
Eligible expenditures include employee wages, subcontractor costs, software, materials, and utilities used for the R&D work. Businesses claim the relief through their Corporation Tax return.
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It helps to reduce businesses’ Corporation Tax bill or receive a cash payment from HMRC. Also, they can invest this fund in accelerating R&D, hiring new staff, and driving overall growth.
What Counts as R&D?
According to HMRC Guidelines, any project must fulfil the criteria to count as R&D:
- Extend overall knowledge or capability in a field of science or technology; or
- Create a process, material, device, product or service which incorporates or represents an increase in overall knowledge or capability in a field of science or technology; or
- Make an appreciable improvement to an existing process, material, device, product or service through scientific or technological changes; or
- Use science or technology to duplicate the effect of an existing process, material, device, product or service in a new or appreciably improved way
Who is Eligible
To claim R&D tax relief, your business must be a UK limited company that pays Corporation Tax. You must also have carried out qualifying research and development activities and incurred eligible R&D costs. Sole traders and partnerships are not eligible to claim.
The project must aim to achieve a genuine advance in science or technology. By resolving a scientific or technological uncertainty that could not easily be overcome by a competent professional in the field. Importantly, the project does not have to succeed. Even unsuccessful R&D projects may qualify if they represented a genuine attempt to overcome that uncertainty.
R&D tax relief is available across many industries, with manufacturing, information and communication, and professional, scientific and technical services among the most common claimants. However, work relating to the arts, humanities, or social sciences, including economics, does not qualify. Certain businesses, such as care homes, childcare providers, wholesalers, retailers, pubs, and restaurants, are also less likely to carry out qualifying R&D activities.
For accounting periods beginning on or after 1 April 2024, most companies claim relief under the merged R&D scheme. Loss-making SMEs with high levels of qualifying R&D expenditure may instead be eligible for Enhanced R&D Intensive Support (ERIS), which can provide relief of up to 27% of qualifying costs.
How Do They Work?
When your company spends money on qualifying R&D, you can claim tax relief on those costs. This can reduce your Corporation Tax bill or, if your company is loss-making, result in a cash payment from HMRC.
For accounting periods beginning on or after 1 April 2024, most companies claim under the merged R&D scheme. The scheme provides relief of up to 16.2% of qualifying expenditure. Loss-making SMEs that qualify for Enhanced R&D Intensive Support (ERIS) may receive relief of up to 27%.
To make a claim, you first identify projects involving genuine scientific or technological uncertainty. You then calculate the qualifying costs, including staff, subcontractors, materials, software, and certain cloud computing and data costs. The claim is submitted as part of your Corporation Tax return. HMRC will then reduce the tax you owe or pay a repayable tax credit, depending on your circumstances.
How to Check and Claim
The first step is confirming that your projects qualify for R&D tax relief. HMRC defines qualifying R&D as work that aims to advance science or technology. It must resolve a genuine scientific or technological uncertainty that a competent professional could not easily overcome. The project does not need to succeed. However, it must represent a genuine attempt to achieve that advance.
Once you have identified your qualifying projects, you need to calculate the eligible costs. These may include staff salaries, employer National Insurance, pension contributions, subcontractor fees, materials, software licences, and certain cloud computing and data costs. Each expense must relate directly to the qualifying R&D activity.
The claim is submitted to HMRC as part of your Company Tax Return. For accounting periods beginning on or after 1 April 2023, you must also submit an Additional Information Form. This must be sent before or at the same time as your tax return. Without it, HMRC will not process your claim. The form requires details of your R&D projects, the scientific or technological uncertainties involved, and how your work attempted to resolve them.
HMRC typically processes straightforward claims within 28 days. More complex claims, or those selected for compliance checks, can take considerably longer. Preparing accurate documentation from the outset helps avoid delays and reduces the likelihood of an HMRC enquiry.
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What Costs Qualify for the R&D Scheme
Not every cost associated with an R&D project qualifies for tax relief. Only costs within HMRC’s approved categories that relate directly to qualifying R&D activities can be claimed.
Staff costs are the largest qualifying category for most businesses. These include salaries, employer National Insurance contributions, pension contributions, and reimbursed expenses for employees working on R&D. If an employee divides their time between R&D and other duties, only the R&D portion qualifies.
Subcontractor and freelancer costs may also qualify. Under the merged R&D scheme, 65% of payments to unconnected subcontractors are eligible where the work forms part of the qualifying R&D activity.
Materials and consumables used up or transformed during the R&D process can be claimed. This includes heat, light, and power. However, materials incorporated into products that are later sold do not qualify.
Software licences used directly in qualifying R&D are eligible. Since April 2023, certain data and cloud computing costs have also qualified. This includes storage and processing costs used directly in the R&D project.
Payments to clinical trial participants are also eligible where they relate directly to the qualifying R&D activity.
Conclusion
R&D tax credits remain one of the most valuable tax reliefs available to UK businesses. Yet many eligible companies still fail to claim them. Others underestimate the value of their claim or submit insufficient evidence, increasing the risk of an HMRC enquiry.
The merged R&D scheme has simplified parts of the process. However, the rules around qualifying activities, eligible costs, and the Additional Information Form still require careful attention. Getting a claim wrong can result in a reduced claim, lengthy delays, compliance checks, or even repayment of relief already received.
TAJ Accountants is a renowned small business accountants firm in London. We help businesses across London identify qualifying R&D activities, calculate eligible costs accurately, and prepare robust claims that meet HMRC’s requirements. Contact us to find out how much R&D tax relief your business could be entitled to.
Frequently Asked Questions
Yes. R&D tax credits are not limited to large companies or research laboratories. Any UK limited company that pays Corporation Tax can claim, provided its work involves genuine scientific or technological uncertainty. Software development, manufacturing improvements, and product innovation commonly qualify. The average SME claim for the 2023/24 tax year was around £85,000.
You can claim for accounting periods up to two years after the end of the relevant accounting period. If your company has not claimed before, or has not claimed in any of the previous three accounting periods, you must also submit a pre-notification to HMRC. This must be done within six months of the end of the accounting period. Missing this deadline means your claim cannot be accepted.
No. An unsuccessful project can still qualify for R&D tax relief. HMRC focuses on whether your company attempted to resolve a genuine scientific or technological uncertainty. The project must represent a genuine attempt to advance science or technology. Routine development work does not qualify.
Yes. The Additional Information Form is mandatory for all R&D tax relief claims. It must be submitted to HMRC before or alongside your Corporation Tax return. The form includes details of each qualifying project, the scientific or technological uncertainties involved, how they were addressed, and a breakdown of the qualifying costs. HMRC will not process your claim without it.
The merged R&D scheme applies to most UK companies for accounting periods beginning on or after 1 April 2024. It provides relief of up to 16.2% of qualifying expenditure. Enhanced R&D Intensive Support (ERIS) is available to loss-making SMEs that spend at least 30% of their total expenditure on qualifying R&D. Eligible companies can receive relief of up to 27% of qualifying costs.
Around one in five R&D claims is currently selected for a compliance check. HMRC will request evidence supporting your claim. This may include design notes, technical reports, test results, and records explaining the scientific or technological uncertainties involved. Compliance checks typically take six to twelve months. If HMRC finds problems with the claim, it may reduce or reject it. It may also recover any relief already paid, together with interest and, in some cases, penalties.
