Tax Relief Guide 2025/26
R&D Tax Credits are one of the most generous tax reliefs available to UK businesses — worth up to 27p for every £1 spent on qualifying research and development. Yet thousands of eligible UK companies fail to claim every year, often because they don’t realise their activities qualify. The scheme has undergone major reform from April 2024. This guide explains the new rules, who qualifies, and exactly how to claim.
What Are R&D Tax Credits?
R&D Tax Credits are a UK Government incentive introduced in 2000 to encourage businesses to invest in innovation. They allow companies to reduce their Corporation Tax bill — or receive a cash payment from HMRC — based on money spent on qualifying research and development activities.
The key question HMRC asks is whether your company is trying to achieve an advance in science or technology by overcoming technical or scientific uncertainty. If yes — and the work is relevant to your trade — you may have a qualifying R&D claim.
R&D is not just for laboratories and tech companies!
Many businesses in construction, manufacturing, food production, software, engineering, professional services and even accountancy carry out qualifying R&D without realising it. If you’ve developed a new process, created custom software, or solved a technical problem that wasn’t straightforward — you may qualify.
The New Merged R&D Scheme — April 2024 Changes
From 1 April 2024, HMRC merged the previous SME scheme and RDEC (Research and Development Expenditure Credit) into a single unified scheme. This is the most significant change to R&D tax relief in over 20 years and affects all companies claiming for accounting periods beginning on or after 1 April 2024.
🔵 Merged RDEC Scheme
15–16.2%
Net benefit per £1 of qualifying spend
- Applies to ALL companies regardless of size
- Above-the-line taxable credit of 20%
- Net benefit 16.2% for profit-making companies
- Net benefit ~15% for loss-making companies
- Applies from April 2024 accounting periods
🟣 ERIS — Enhanced R&D Intensive Support
Up to 27%
Net benefit per £1 of qualifying spend
- For loss-making SMEs spending 30%+ on R&D
- Enhanced 14.5% credit on surrendered losses
- Threshold reduced from 40% to 30% (April 2024)
- Most beneficial for early-stage innovative companies
- Biotech, medtech, software startups typically qualify
SMEs now get less relief than before — but ERIS helps the most innovative
The old SME scheme was worth up to 21.5% for profit-making SMEs. The new merged scheme delivers 15–16.2% for most companies. However, loss-making SMEs spending over 30% of their costs on R&D can access up to 27% under ERIS — significantly higher than before.
R&D Relief Rates at a Glance 2025/26
| Company Type | Scheme | Credit Rate | Net Benefit |
|---|---|---|---|
| All profit-making companies | Merged RDEC | 20% | ~16.2% |
| Loss-making companies (non-intensive) | Merged RDEC | 20% | ~15% |
| Loss-making SMEs — R&D spend 30%+ of total costs | ERIS | 14.5% credit | Up to 27% |
What Qualifies as R&D?
HMRC’s definition of R&D for tax purposes is specific. Your project must:
- Seek to achieve an advance in science or technology
- Involve overcoming scientific or technological uncertainty — the answer cannot be readily available or deducible by a competent professional in the field
- Be related to your company’s existing or planned trade
What Activities Count as R&D?
Qualifying R&D Activities
Developing new or improved products, processes or services. Creating software that solves technical problems. Prototyping and testing. Overcoming engineering challenges. AI and machine learning development. Novel manufacturing processes.
Non-Qualifying Activities
Routine testing or quality control. Applying existing technology without innovation. Arts, humanities or social sciences research. Market research or surveys. Minor cosmetic changes to existing products.
Qualifying R&D Costs
Once you have established that your activities qualify as R&D, the following types of expenditure can be included in your claim:
| Cost Type | Qualifying? | Notes |
|---|---|---|
| Staff costs (salary, NI, pension) directly working on R&D | ✅ Yes | Most valuable — typically largest element of claims |
| Subcontractor costs (UK-based) | ✅ Yes | 65% of costs eligible; new contracted-out rules apply |
| Consumable materials used in R&D | ✅ Yes | Materials, utilities, water, fuel used in R&D process |
| Cloud computing and data costs | ✅ Yes | AWS, Azure, Google Cloud now qualifying from April 2023 |
| Software licenses used in R&D | ✅ Yes | Where software directly used in the R&D process |
| Overseas subcontractor costs | ✅ Limited | Generally restricted from April 2024; limited exceptions |
| Capital expenditure (equipment) | ❌ No | Claimed separately via capital allowances |
| Indirect support staff | ❌ No | HR, finance, admin not qualifying unless directly supporting R&D |
Worked Example — Merged RDEC Claim
Here is how a typical R&D claim works for a profit-making SME under the new merged scheme:
🔢 Merged RDEC Example — Profit-Making SME
Qualifying R&D expenditure£200,000
RDEC credit (20% × £200,000)£40,000
RDEC is taxable income — Corp Tax at 25%– £10,000
Net cash benefit to company£30,000
That’s a net benefit of 15p for every £1 spent on qualifying R&D — equivalent to getting back £30,000 from HMRC on £200,000 of eligible spend.
🔢 ERIS Example — Loss-Making R&D Intensive SME (30%+ R&D spend)
Qualifying R&D expenditure£300,000
Total company expenditure£800,000
R&D intensity (300k ÷ 800k)37.5% ✅ qualifies for ERIS
Surrenderable loss used for ERIS credit£300,000
ERIS credit (14.5% × £300,000)£43,500
Cash payment received from HMRC£43,500
How to Claim — Step by Step
1
Notify HMRC (if first-time claimant)
If you have not claimed R&D tax credits in the last 3 years, you must notify HMRC of your intention to claim within 6 months of your accounting period ending. Submit via gov.uk — basic details only required at this stage.
2
Identify Qualifying Projects and Costs
Work through your projects against HMRC’s definition of R&D. Document the scientific or technological uncertainty you were seeking to overcome and which costs relate directly to that work.
3
Complete the Additional Information Form (AIF)
Before submitting your Corporation Tax return, you must complete and submit an AIF through HMRC’s online service. This requires technical descriptions of your R&D projects and a breakdown of qualifying costs.
4
Include in Corporation Tax Return (CT600)
Your R&D claim is made as part of your Company Tax Return (CT600). The RDEC credit appears as income in your accounts and is offset against your Corporation Tax liability.
5
Receive Your Credit or Repayment
HMRC typically processes R&D claims within 40 days. You’ll either receive a reduced Corporation Tax bill or, if loss-making, a cash repayment direct to your bank account.
HMRC compliance checks have increased significantly
Around 20% of R&D claims are now subject to compliance checks. HMRC requires robust technical and financial documentation. Businesses that cannot evidence their claims face delays, penalties, and repayment demands. Always work with an R&D specialist to prepare compliant claims.
Industries That Commonly Claim R&D Credits
- Software and Technology — developing new algorithms, platforms, AI tools
- Manufacturing — new or improved production processes, materials
- Construction and Engineering — novel building techniques, structural challenges
- Food and Drink — new products, production methods, shelf life improvement
- Life Sciences and Biotech — drug development, medical devices, clinical trials
- Agriculture — crop yields, sustainable farming techniques
- Financial Services — FinTech solutions, algorithmic trading systems
Have you received grant funding for your R&D project?
Under the new merged scheme, receiving grant funding for a project no longer disqualifies you from claiming R&D tax credits on the same project — a significant change from the old rules. This particularly benefits SMEs that have received Innovate UK grants.
Frequently Asked Questions
How much can I claim in R&D tax credits?
Under the merged RDEC scheme, most companies receive a net benefit of 15–16.2% of qualifying R&D expenditure. Loss-making SMEs spending over 30% of their total costs on R&D can claim up to 27% under the ERIS scheme. A company spending £500,000 on qualifying R&D could receive up to £81,000 under ERIS or £81,000 under standard RDEC.
Can I claim R&D credits if my company is making a loss?
Yes. Loss-making companies can still claim R&D credits. Under the merged RDEC scheme, loss-making companies receive a net cash benefit of approximately 15%. Loss-making SMEs spending 30% or more of their total costs on R&D can claim under the enhanced ERIS scheme at up to 27%.
What is the deadline for making an R&D claim?
R&D claims must be submitted within 2 years of the end of your accounting period. However, first-time claimants (who have not claimed in the previous 3 years) must notify HMRC within 6 months of the accounting period ending. Missing the notification deadline means you cannot claim.
Do I need a specialist to make an R&D claim?
While not legally required, HMRC now demands a very high standard of technical and financial documentation. Given that 20% of claims face compliance checks and incorrect claims can result in penalties, working with an experienced R&D adviser significantly reduces risk and typically maximises your claim value.