R&D tax credits are a UK government incentive that gives Corporation Tax relief (or a payable credit) for spending on qualifying research and development. Since April 2024 the regimes have been simplified into the merged RDEC scheme plus Enhanced R&D Intensive Support for loss-making SMEs.

Done well, R&D claims can recover 15-25% of qualifying spend. Done poorly, they get rejected, investigated, or worse — and HMRC has been rejecting an unprecedented number since 2023.

The two current schemes

Merged RDEC (most claimants)

The default scheme for accounting periods starting on or after 1 April 2024. Replaces the previous SME and RDEC schemes for most claimants.

• Headline rate: 20% expenditure credit on qualifying R&D spend.
• After Corporation Tax: post-tax benefit of 15% (large companies) or 16.2% (smaller companies whose CT rate is 19%).
• Payable credit: loss-making companies can receive a cash refund instead of CT reduction.
• Subcontracted R&D: claimable by the company that initiated and decided the R&D (rather than the subcontractor doing the work) — a significant change from the old SME rules.

Enhanced R&D Intensive Support (ERIS) — loss-making R&D-intensive SMEs

A separate, more generous scheme for SMEs whose qualifying R&D spend is at least 30% of total expenditure.

• Headline benefit: enhanced deduction at 86%, leading to a payable credit at 14.5% of the surrenderable loss.
• Equivalent to: about 27% post-tax benefit on qualifying spend.

Most software startups, biotech, and engineering R&D-led companies qualify for ERIS in their early years. Once profitable or scaling past the 30% intensity threshold, they move to the merged RDEC scheme.

What qualifies as R&D

HMRC''s definition is narrower than the everyday meaning of "research and development". Qualifying work must:

1. Seek an advance in science or technology.
2. Resolve scientific or technological uncertainty — uncertainty that could not be readily resolved by a competent professional working in the field.
3. Not be readily deducible from publicly available knowledge.

Examples that typically qualify:

• Developing novel software algorithms (not just integrating off-the-shelf libraries).
• Solving difficult performance, scale, or reliability problems that aren''t addressed by published solutions.
• New manufacturing processes or material formulations.
• AI/ML model architectures that genuinely push beyond standard approaches.

Examples that typically do NOT qualify:

• Building a website, app, or SaaS platform using established frameworks (no scientific/technological uncertainty).
• Commercial innovation without underlying technical advance (a new business model, a new market).
• Quality control, market research, design work.
• Routine software development, even if novel to your business.

Eligible costs

Within qualifying R&D activity, you can claim:

• Staff costs for people directly engaged in R&D — gross pay, employer NIC, employer pension contributions, reimbursed expenses for R&D travel. Apportion if the staff are partly on R&D and partly on other work.
• Externally provided workers — subcontractors and agency staff doing R&D work (rules vary).
• Subcontracted R&D (under the merged scheme).
• Consumable items — materials, fuel, power, water consumed in R&D.
• Software licences used in R&D.
• Clinical trial volunteers (specific to life sciences).

Capital expenditure on equipment is NOT a qualifying R&D cost — but R&D equipment may qualify for separate Research and Development Allowances (RDAs) at 100%.

How to make a claim

1. Identify the qualifying R&D projects in the accounting period.
2. Compile the technical narrative — a written explanation, for each project, of the scientific or technological advance sought, the uncertainty, and how the work attempted to resolve it. This is the most-scrutinised part of any claim.
3. Compile the cost analysis — by project, by qualifying cost category.
4. File the Additional Information Form with HMRC — mandatory since August 2023 for every claim. Without it, the claim is invalid.
5. Include the claim on the company''s CT600 tax return within 2 years of the accounting period end.

The enforcement crackdown

HMRC has fundamentally changed its approach to R&D claims since 2023:

• Higher rejection rate — particularly for software companies and claims by small or unprofitable companies.
• More enquiries — many claims are now opened to detailed enquiry rather than processed automatically.
• Mandatory adviser identification on the Additional Information Form — naming the agent / consultancy submitting the claim, with HMRC tracking adviser quality.
• New rules on contracted R&D — clarifying when R&D done by the company can be claimed (and when the contracting customer claims it instead).

The implication: speculative or thin claims attract challenge and penalty. Good claims still get paid but need solid documentation.

What to do if you might qualify

• Talk to a reputable R&D adviser — many accountants don''t specialise in R&D and partner with specialists. Avoid percentage-of-claim contingent-fee advisers who pressure marginal claims through; HMRC scrutinises their work hardest.
• Keep contemporaneous records of R&D work — timesheets, project plans, technical decisions — throughout the year, not reconstructed afterwards.
• Be honest about scope. A modest, well-evidenced claim beats an inflated, weakly-evidenced one.
• Budget for HMRC enquiry — even good claims get reviewed. The process takes 3-12 months.