What is R&D tax relief?
Research and Development (R&D) tax relief is a government incentive designed to reward companies that:
- Develop new products or services
- Improve existing processes, systems or technology
If your company is solving technical challenges or innovating, you may be able to reduce your Corporation Tax bill or receive a cash payment.
Has R&D tax relief changed?
Yes — the rules have changed significantly.
The old system (with 230% relief and 14.5% payable credit) no longer applies for most companies.
For 2025/26, there are now two main schemes:
1. SME Scheme (for small and medium-sized companies)
Under the current SME scheme:
- Companies receive an additional 86% deduction on qualifying R&D costs
- This gives a total deduction of 186%
If the company is loss-making:
- Losses can be surrendered for a payable tax credit of 10%
Enhanced R&D Intensive Support (ERIS)
If your company is R&D intensive (broadly where R&D costs are 30%+ of total expenditure), you may qualify for:
- A higher payable credit of 14.5%
This is designed to support businesses heavily focused on innovation.
2. RDEC Scheme (for larger companies or some SMEs)
The Research and Development Expenditure Credit (RDEC) provides:
- A taxable credit of 20% of qualifying R&D expenditure
This scheme is typically used by:
- Large companies
- SMEs that are subcontracted or grant-funded
What costs qualify?
You can claim for a range of R&D-related costs, including:
- Staff wages (including directors involved in R&D)
- Employer’s National Insurance and pension contributions
- Subcontractor costs (subject to rules)
- Software used in R&D
- Consumables (materials, utilities used in testing)
What qualifies as R&D?
R&D must involve:
- An advance in science or technology, and
- Technical uncertainty that cannot easily be resolved by a professional in the field
This includes more than just “lab work” — many software, construction, and engineering projects qualify.
Advance assurance (still available)
You can apply to HMRC for advance assurance, which:
- Confirms your company qualifies for R&D relief
- Applies to your first claim and typically the next two accounting periods
This can reduce the risk of HMRC enquiries.
New compliance requirements (important)
HMRC has tightened R&D claims significantly.
You must now:
- Submit an additional information form before claiming
- Provide detailed descriptions of R&D projects
- Identify qualifying costs clearly
Failure to follow these steps can result in your claim being rejected.
Deadlines for claiming
You must submit your R&D claim:
- Within 2 years of the end of the accounting period
Late claims will not be accepted.
Common mistakes to avoid
- Using outdated rules (e.g. 230% relief)
- Claiming for non-qualifying activities
- Poor documentation of R&D projects
- Missing the additional information submission requirement
- Overclaiming subcontractor or indirect costs
Is it worth claiming?
R&D tax relief can be extremely valuable:
- Profitable companies reduce Corporation Tax
- Loss-making companies can receive a cash payment
However, HMRC scrutiny is now much higher, so claims must be accurate and well-supported.
Final thoughts
R&D tax relief remains one of the most valuable incentives available to UK companies, but the rules are now more complex and tightly monitored.
Ensuring your claim is correct, justified and properly documented is essential.
