If your business is trying to solve a genuine scientific or technological problem, you may be able to claim R&D tax relief on some of the costs involved.
The rules changed significantly in April 2024, with the old SME and RDEC schemes replaced by the merged R&D expenditure credit scheme and Enhanced R&D Intensive Support (ERIS). This guide explains who can claim, what qualifies, how much the relief can be worth and what HMRC expects from a valid claim.
Last updated: September 2026
What Are R&D Tax Credits?
R&D tax relief is designed to support companies that invest in research and development.
If your business spends money trying to achieve an advance in science or technology, you may be able to claim tax relief on some of those costs. Depending on the scheme and your circumstances, the benefit may reduce your Corporation Tax bill or result in a payable credit from HMRC. For accounting periods beginning on or after 1 April 2024, claims fall under the merged scheme or Enhanced R&D Intensive Support (ERIS).
Can My Business Claim R&D Tax Relief?
To make a claim, your company must be within the scope of UK Corporation Tax and carrying on a trade. The project itself also needs to meet HMRC’s definition of qualifying R&D.
In practical terms, that means the project should:
- seek an advance in science or technology;
- involve scientific or technological uncertainty;
- require work to overcome that uncertainty; and
- be assessed by people with suitable expertise in the relevant field.
The key question isn’t simply whether the work was innovative for your business. It needs to represent an advance in the wider field, rather than something a competent professional could readily work out using existing knowledge.
What Counts as R&D?
Qualifying R&D can take many forms. It might involve developing a new product, improving an existing process or finding a new way to solve a technical problem.
Examples could include:
Software
Developing new algorithms, system architecture or functionality where there are genuine technological uncertainties to overcome.
Engineering
Designing components, materials or systems that need to perform in conditions where the solution isn’t already known.
Manufacturing
Developing new production methods, improving precision or testing ways to reduce waste where existing techniques don’t provide an obvious solution.
Life Sciences
Developing new treatments, carrying out qualifying clinical research or solving scientific uncertainties involved in diagnostics or drug development.
The sector itself is less important than the nature of the work. What matters is whether the project is seeking a genuine scientific or technological advance and whether resolving the uncertainty requires more than routine knowledge or standard practice.
Which R&D Tax Relief Scheme Applies?
For accounting periods beginning on or after 1 April 2024, there are two main R&D tax relief schemes: the merged R&D expenditure credit scheme and Enhanced R&D Intensive Support (ERIS).
Which applies will depend largely on your company's circumstances and, for ERIS, whether you're a loss-making R&D-intensive SME.
Merged R&D Expenditure Credit Scheme
The merged scheme applies to most companies carrying out qualifying R&D, regardless of whether they're an SME or a larger business.
The relief is provided as an expenditure credit worth 20% of qualifying R&D expenditure. The credit is treated as taxable trading income and appears above the profit line in the company's accounts.
Because the credit itself is taxable, the amount your business ultimately benefits from will depend on its Corporation Tax position.
Enhanced R&D Intensive Support (ERIS)
ERIS is specifically for loss-making SMEs that invest heavily in R&D.
To qualify as R&D intensive, your relevant R&D expenditure generally needs to represent at least 30% of your total relevant expenditure, including relevant expenditure of connected companies. A grace period can also allow some businesses that previously met the intensity condition to continue qualifying if they temporarily fall below the threshold.
Under ERIS, qualifying companies can receive:
- an additional 86% deduction on qualifying R&D expenditure, giving a total deduction of 186%; and
- a payable tax credit worth up to 14.5% of the surrenderable loss.
What Costs Can You Claim for R&D?
Once you've identified a qualifying R&D project, you can include certain costs that relate directly to the R&D activities. Where a cost is only partly related to R&D, you can generally only claim the appropriate proportion.
Staff Costs
You can claim relevant employment costs for staff working directly on R&D, including salaries, wages, employer National Insurance contributions, pension contributions, bonuses and certain training costs.
A proportion of the costs of employees carrying out qualifying support activities may also be included.
Externally Provided Workers
If workers are supplied to your business by an agency or other staff provider, some of these costs may qualify.
For an unconnected staff provider, you can generally claim 65% of the relevant payment. Different rules apply where the provider is connected to your company or the R&D takes place overseas.
Contractors
Payments to contractors carrying out R&D on your behalf can qualify, but the rules depend on who decided the R&D needed to be undertaken and where the work takes place.
For accounting periods beginning on or after 1 April 2024, the size of your company and whether the project is subsidised no longer determine whether contractor costs qualify.
Consumables
You can claim the proportion of materials and other consumable items used up during qualifying R&D, including:
- materials, chemicals and ingredients;
- fuel;
- power; and
- water.
Consumables that are subsequently sold or transferred as part of a product cannot normally be claimed.
Software
Software licence costs can qualify where the software is used for R&D. If it's also used for other purposes, only a reasonable proportion of the cost should be included.
Data and Cloud Computing
For accounting periods beginning on or after 1 April 2023, qualifying expenditure can include certain data licences and cloud computing services used directly for R&D. This can include data storage, hardware facilities, operating systems and software platforms.
Clinical Trial Participants
Companies carrying out qualifying clinical research can include payments made to participants in clinical trials, such as trials of new drugs or medical techniques.
What Can't You Claim?
Not every cost associated with an R&D project will qualify. HMRC specifically excludes costs such as:
- general production and distribution of goods and services;
- capital expenditure;
- the cost of land;
- patents and trademarks;
- rent, rates and leasing costs; and
- general clerical, maintenance or administrative work that would have been carried out regardless of the R&D project.
How Much Could Your R&D Tax Relief Be Worth?
The value of your R&D tax relief will depend on which scheme applies, how much qualifying expenditure you have and your company's tax position.
Merged Scheme
Under the merged scheme, you receive an expenditure credit worth 20% of your qualifying R&D costs. The credit itself is taxable, so the net benefit will depend on your Corporation Tax position.
For example, a company with £100,000 of qualifying R&D expenditure would receive a £20,000 expenditure credit. For a company paying Corporation Tax at the 25% main rate, this would give a net benefit of around £15,000 after tax.
Enhanced R&D Intensive Support
ERIS works differently. Qualifying loss-making R&D-intensive SMEs receive an additional 86% deduction on their qualifying R&D expenditure and can surrender qualifying losses for a payable tax credit at 14.5%
The amount you can surrender depends on both your qualifying R&D expenditure and the size of your trading loss, so there isn't one percentage that accurately represents what every ERIS claim will be worth.
For example, a company with £100,000 of qualifying R&D expenditure and a sufficiently large trading loss could have enhanced expenditure of £186,000. If the full £186,000 were available to surrender, a 14.5% credit would be worth £26,970.
Who Claims When R&D Is Contracted Out?
R&D projects don't always sit neatly within one company. You might bring in a specialist contractor to carry out part of your R&D, or your business might encounter R&D while delivering work for a client.
For accounting periods beginning on or after 1 April 2024, the general principle is that the company that decides the R&D needs to be carried out and plans that R&D is normally the company entitled to claim. It isn't simply a case of whichever business physically carries out the work being able to claim for it.
If You Contract Out Your R&D
If your company identifies that R&D is required and then hires another business or specialist to carry out some or all of that work, your company may be able to include qualifying contractor payments in its claim.
You'll need to be able to show that your business made the decision to undertake the R&D and intended or contemplated that the contracted work would involve that R&D.
If You're Carrying Out Work for a Client
Being paid by a client doesn't automatically prevent your business from making an R&D claim.
If the client didn't initiate or know that R&D would be required and your company independently identifies a technological problem while fulfilling the contract, decides R&D is necessary and plans the R&D itself, your company may be able to claim for its qualifying costs.
Because contractual arrangements can vary considerably, it's worth establishing who initiated and planned the R&D before including contracted work in a claim.
Can You Claim R&D Costs for Work Carried Out Overseas?
For accounting periods beginning on or after 1 April 2024, there are restrictions on claiming for R&D carried out overseas by contractors and externally provided workers. In most cases, the qualifying activity needs to take place in the UK.
Overseas costs may still qualify where conditions necessary for the R&D:
- aren't present in the UK;
- are present in the overseas location; and
- would be wholly unreasonable to replicate in the UK.
This could include particular geographical, environmental or social conditions, or legal and regulatory requirements that mean the work has to take place in another country.
However, lower costs or the availability of suitable workers overseas aren't enough on their own to meet the exception.
If your R&D involves overseas contractors or workers, it's worth checking the position carefully before including those costs in your claim.
Can You Claim R&D Tax Relief If You've Received a Grant?
Yes. Receiving a grant or other financial support doesn't automatically prevent you from claiming R&D tax relief.
For accounting periods beginning on or after 1 April 2024, there is no restriction on claiming subsidised qualifying costs under either the merged scheme or ERIS. This means R&D expenditure supported by funding such as an Innovate UK grant can potentially still form part of your claim.
The costs themselves must still meet the normal R&D eligibility rules, and you'll need to consider other rules such as who is entitled to claim where R&D has been contracted out.
For accounting periods beginning before 1 April 2024, different rules applied to subsidised expenditure under the old SME scheme.
How Do You Claim R&D Tax Relief?
An R&D tax relief claim is made through your Company Tax Return, but there are a few steps you'll need to complete before submitting it.
1. Check Whether You Need to Notify HMRC
Some companies need to tell HMRC in advance that they intend to make an R&D claim. This generally applies if you're claiming for the first time or haven't made an R&D claim within the relevant previous three-year period.
If notification is required, missing the deadline can make your claim invalid.
2. Identify Your Qualifying Projects and Costs
Review the projects your business has worked on and identify which meet the definition of R&D.
You'll then need to calculate the qualifying expenditure associated with those projects, such as eligible staff, contractor, software and consumable costs.
3. Submit the Additional Information Form
Every R&D claim must be supported by an Additional Information Form (AIF). This provides HMRC with information about your R&D projects, qualifying expenditure and the people involved in preparing the claim.
The AIF must be submitted before your Company Tax Return, or first if both are submitted on the same day. If the tax return reaches HMRC first, the R&D claim will be rejected.
4. Make the Claim Through Your Company Tax Return
Your R&D claim is then included in your Company Tax Return (CT600).
Claims under the merged scheme require the supplementary CT600L form. For ERIS, CT600L is required where you're claiming a payable tax credit.
5. Keep Evidence to Support Your Claim
Keep records showing how you identified the qualifying R&D and calculated the costs claimed. This could include project documentation, technical records, calculations, invoices and input from the competent professionals involved in the work.
R&D Tax Relief Deadlines
For a typical accounting period, you usually have two years from the end of the period of account to make or amend an R&D tax relief claim. Different time limits apply where your period of account is longer than 18 months.
However, some companies also need to notify HMRC in advance that they intend to make an R&D claim. Where notification is required, the deadline is generally six months after the end of the period of account.
Your R&D claim deadline and your claim-notification deadline are not the same thing. You could still be within the normal deadline for making a claim but lose the ability to claim if you were required to notify HMRC and missed that earlier deadline.
Because the rules differ for longer periods of account and companies with previous R&D claims, it's worth checking your deadlines before you start preparing the claim.
Common R&D Tax Relief Claim Mistakes
HMRC can reject or challenge an R&D claim where the qualifying activity, costs or supporting information don't meet the required rules. Some of the most common areas to watch are:
Claiming Routine Improvements
Being innovative isn't enough on its own. The project needs to seek an advance in science or technology and involve scientific or technological uncertainty that couldn't readily be resolved by a competent professional.
A Weak Technical Explanation
Your claim needs to clearly explain what advance you were seeking, what uncertainty you faced and how you tried to overcome it. Simply describing the finished product or saying that a project was technically difficult isn't enough.
Including Costs That Don't Qualify
Only qualifying expenditure should be included in the claim. Make sure you can show how staff time, contractors, software, consumables and other costs relate to the qualifying R&D activity.
Incorrectly Claiming Overseas Costs
Overseas contractor and externally provided worker costs are restricted under the current rules. If you're relying on an exception, you should be able to demonstrate why the necessary R&D conditions couldn't reasonably be replicated in the UK.
Missing the Claim Notification or Additional Information Form
If you're required to notify HMRC and miss the deadline, your claim can be invalid. Every R&D claim must also be supported by an Additional Information Form submitted before the Company Tax Return containing the claim.
The Wrong Company Makes the Claim
Where R&D involves customers, contractors or subcontractors, don't assume the company physically carrying out the work is automatically entitled to claim. Under the current rules, you need to establish which company made the decision that the R&D needed to be undertaken.
Need Help With an R&D Tax Relief Claim?
If you're unsure whether your business qualifies for R&D tax relief or need help putting together a claim, Ryans can help.
Our R&D tax credit specialists can help identify qualifying R&D, calculate the costs you can claim and prepare the information needed to support your submission to HMRC.
Get in touch with our team to discuss your R&D claim.
FAQ's
Can an Unsuccessful R&D Project Still Qualify?
Yes. An R&D project doesn't have to succeed to qualify. What matters is whether the project sought an advance in science or technology and involved genuine scientific or technological uncertainty. Work on an unsuccessful or abandoned project can therefore still qualify.
Contact UsCan Software Development Qualify for R&D Tax Relief?
Yes, but developing software isn't automatically R&D. The project still needs to seek an advance in science or technology and involve technological uncertainty that couldn't readily be resolved by a competent professional in the field.
Contact UsCan a Start-Up Claim R&D Tax Relief?
Yes. Being a start-up doesn't prevent a company from claiming R&D tax relief, provided it meets the relevant eligibility requirements and has qualifying R&D expenditure. Loss-making companies may also be able to receive a payable credit, depending on which scheme applies.
Contact UsDoes HMRC Investigate R&D Tax Relief Claims?
HMRC can open a compliance check into an R&D claim and ask for further information to establish whether the activities and costs claimed qualify. Keeping clear technical and financial evidence can help support the claim if HMRC asks questions about it.
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