If your limited company spends money solving a genuine scientific or technological problem, you may be entitled to a meaningful reduction in your Corporation Tax bill, or even a cash payment from HMRC if you are loss-making. R&D tax credits are one of the most underused reliefs among small UK companies, often because owners assume research and development only applies to labs and universities. This guide explains the current merged scheme, who qualifies, and how to claim.
Quick Answer
Since April 2024, most UK companies claim R&D tax relief through a single merged scheme, giving a taxable credit of 20% of qualifying R&D expenditure, worth around 15p to 16.2p per £1 spent after Corporation Tax. Loss-making companies with R&D spending of at least 30% of total expenditure can claim under Enhanced R&D Intensive Support instead, which offers a significantly higher cash benefit.
What Counts as R&D for Tax Purposes?
HMRC’s definition is broader than most business owners expect. A project qualifies if it seeks an advance in science or technology by resolving scientific or technological uncertainty, something a competent professional in the field could not easily work out in advance. This regularly includes software development, engineering improvements, new manufacturing processes, and product development, not just formal laboratory research. Routine work, applying existing techniques with no genuine technical uncertainty, does not qualify.
The Merged R&D Scheme
For accounting periods beginning on or after 1 April 2024, the previous SME scheme and RDEC scheme were replaced by a single merged scheme for most companies. It works as an above-the-line taxable credit, meaning it appears in your accounts as income before being taxed, then offsets against your Corporation Tax liability.
| Corporation Tax Rate | Gross Credit | Approximate Net Benefit per £1 Spent |
|---|---|---|
| 25% main rate | 20% | Around 15p |
| 19% small profits rate | 20% | Around 16.2p |
If your Corporation Tax liability is fully covered, any remaining credit can be paid to you in cash, subject to a PAYE and National Insurance cap of £20,000 plus 300% of your relevant PAYE and NIC liability for the period. For background on how this interacts with your wider tax position, see our guide to Corporation Tax for small businesses.
Enhanced R&D Intensive Support (ERIS)
Loss-making SMEs that spend at least 30% of their total expenditure on qualifying R&D can claim under ERIS instead of the merged scheme, since it offers considerably more generous relief for genuinely research-heavy companies.
- An enhanced deduction giving a total deduction of 186% of qualifying costs, once the standard 100% deduction is included
- A payable credit of up to 14.5% on the resulting surrenderable loss
- A combined cash benefit that can reach around 27% of qualifying R&D expenditure for companies that meet the intensity threshold
ERIS is not available on subsidised or grant-funded R&D costs, which must instead be claimed under the merged scheme.
Which Costs Qualify?
- Staff costs for employees directly working on the R&D project, including salaries, employer National Insurance and pension contributions
- Subcontracted R&D costs, within specific rules on where the subcontractor is based
- Software and consumable items used directly in the R&D activity
- A proportion of utility costs directly attributable to the R&D work
Claim Notification and the Additional Information Form
Two procedural requirements catch out first-time claimants more than anything else. If you are a new claimant, or have not claimed in the previous three years, you must submit a Claim Notification Form to HMRC within 6 months of the end of the accounting period the claim relates to. Miss this window and you lose the right to claim for that period entirely, regardless of how strong the underlying R&D work is.
Every claim, whether first-time or repeat, must also be supported by an Additional Information Form submitted before the Company Tax Return, setting out the qualifying projects and costs in detail. Claims submitted without one are rejected automatically.
How to Claim R&D Tax Relief
- Identify qualifying projects and confirm they meet HMRC’s definition of resolving genuine scientific or technological uncertainty
- Submit a Claim Notification Form within 6 months of the accounting period end, if required
- Calculate qualifying expenditure across staff, subcontractor, software and consumable costs
- Complete and submit the Additional Information Form, describing the projects and the uncertainty addressed
- Include the claim in your Company Tax Return (CT600)
The claim time limit is 2 years from the end of the relevant period of account, so retrospective claims are possible within that window, though the Claim Notification Form deadline is far tighter for new or lapsed claimants.
Common Reasons Claims Are Challenged or Rejected
- Missing the Claim Notification Form deadline for a new or lapsed claimant
- Submitting a claim without a complete Additional Information Form
- Describing routine technical work as R&D without genuine scientific or technological uncertainty
- Overstating staff time actually spent on qualifying activity rather than general business tasks
- Claiming ERIS on subsidised or grant-funded costs, which must go through the standard merged scheme instead
HMRC has significantly increased compliance checks on R&D claims in recent years, so accurate, well-documented claims matter more than ever. Keeping clear records of project timelines, staff time, and technical decisions throughout the year makes a claim far easier to support if HMRC asks questions.
Frequently Asked Questions
What is the current R&D tax credit rate in the UK?
Most companies claim a 20% gross taxable credit under the merged scheme, worth around 15p to 16.2p per £1 of qualifying spend after Corporation Tax. Loss-making, R&D-intensive SMEs can claim a higher cash benefit under ERIS.
Does my small business qualify for R&D tax credits?
If you have a limited company undertaking a project that seeks to resolve genuine scientific or technological uncertainty, you likely qualify, regardless of your sector, provided the costs and claim procedure are correctly documented.
What is the deadline to claim R&D tax relief?
The overall claim time limit is 2 years from the end of the relevant accounting period. New or lapsed claimants must also submit a Claim Notification Form within 6 months of the period end, or lose the right to claim.
Can a loss-making company claim R&D tax credits?
Yes. Loss-making companies can receive a payable cash credit rather than a Corporation Tax reduction, and R&D-intensive loss-making SMEs can access the more generous ERIS rates.
Is software development eligible for R&D tax relief?
Often, yes, provided the work resolves genuine technical uncertainty rather than applying existing, well-understood techniques.
Key Takeaways
- Most companies claim a 20% gross credit under the merged R&D scheme, worth roughly 15p to 16.2p per £1 spent
- Loss-making SMEs with R&D intensity of 30% or more can claim higher relief under ERIS
- New or lapsed claimants must submit a Claim Notification Form within 6 months of the accounting period end
- Every claim needs an Additional Information Form before the Company Tax Return
- The overall claim time limit is 2 years from the end of the period of account
About the Author
This guide was prepared by the Business Mine editorial team, who research and write practical UK business, tax and finance guides. Information is checked against current HMRC guidance at the time of publication. This article is provided for general information only and does not constitute tax advice; for advice specific to your circumstances, consult a qualified accountant.
