Research and development (R&D) tax relief for limited companies

Understand the merged scheme from April 2024

For accounting periods beginning on or after 1 April 2024, the previous separate SME R&D scheme and R&D Expenditure Credit (RDEC) scheme for larger companies were replaced for most companies by a single merged R&D expenditure credit scheme. The merged scheme generally operates as an above-the-line credit calculated on qualifying R&D expenditure, taxable as trading income, with the net benefit depending on the company's tax position.

The change was intended to simplify the system and reduce the incentive for claims to be miscategorised between schemes. Check which scheme applies to your specific accounting period, since the rules depend on when the period started, not on when you submit the claim.

The Enhanced R&D Intensive Support scheme

A separate scheme, the Enhanced R&D Intensive Support scheme (ERIS), remains available for loss-making SMEs that meet an R&D intensity threshold, broadly where qualifying R&D expenditure represents a sufficiently high proportion of total expenditure. Eligible companies can claim a more generous additional deduction and a higher payable credit rate than the merged scheme offers to non-intensive companies.

Intensity is tested against total relevant expenditure for the period, and there can be a one-year grace period allowing continued ERIS eligibility if intensity temporarily falls below the threshold, subject to conditions. Confirm the current intensity threshold and grace period conditions before assuming eligibility, since thresholds have changed since the scheme was introduced.

Identify qualifying costs correctly

Qualifying R&D expenditure typically includes staff costs for employees directly engaged in the R&D project (including a proportion of time for mixed roles), subcontracted R&D costs within certain limits, externally provided workers, consumable items used up in the R&D, and some software and data costs used directly in the R&D activity.

The underlying work must seek an advance in science or technology that resolves scientific or technological uncertainty, not simply a new business process, routine testing or straightforward application of existing techniques. Document the technical uncertainty and the process used to try to resolve it; a competent professional in the field should not already know the answer.

• Staff time directly working on R&D, apportioned fairly for mixed duties.
• Consumable items and some utilities used up or transformed during the R&D.
• Subcontracted R&D and externally provided workers, within the applicable rules.
• Certain software licences and data and cloud computing costs used directly for the R&D.
• Costs that are only indirectly related, such as general marketing, are not qualifying R&D costs.

Follow the current claim process

All companies must submit a compulsory additional information form to HMRC before or at the same time as the Company Tax Return claiming R&D relief; a claim without this form will be rejected. The form asks for project and cost details and must be completed by someone with sufficient knowledge of the claim.

Some companies must also submit a claim notification form in advance, generally where the company has not claimed R&D relief in the preceding three years (subject to specific timing and exemption rules), and the notification deadline falls within six months of the end of the relevant accounting period. Missing this notification where required can mean losing the ability to claim for that period.

1. 1

   Check whether a claim notification form is required for the accounting period and, if so, submit it within six months of the period end.

2. 2

   Identify and document the qualifying R&D projects and the scientific or technological uncertainty addressed.

3. 3

   Apportion staff time and identify qualifying consumables, software and subcontractor costs.

4. 4

   Complete the additional information form with project descriptions and cost breakdowns.

5. 5

   Submit the additional information form before or alongside the Company Tax Return including the claim.

Watch claim deadlines and compliance risk

R&D claims are generally made within the normal Company Tax Return amendment window, typically within two years of the end of the relevant accounting period, though specific time limits should be checked for each claim. A claim notification requirement, where it applies, has its own earlier six-month deadline that is easy to miss if R&D work only becomes apparent later in the accounting cycle.

HMRC has increased scrutiny of R&D claims following concerns about error and fraud in the schemes, including more compliance checks and the use of a dedicated R&D unit. Overstated or poorly evidenced claims can lead to repayment of relief, penalties and interest, so keep contemporaneous technical records rather than reconstructing a justification after the claim is challenged.

Worth knowing: Build R&D claim notification into project planning, not just year-end accounting, since the six-month window can pass before the return is even due.

Choose an adviser carefully

R&D tax relief has attracted both specialist advisers with genuine technical expertise and firms promoting aggressive, high-volume claims on a contingent fee basis. A claim prepared without proper technical and financial scrutiny increases the risk of an HMRC enquiry, repayment demands and penalties.

Ask a prospective adviser how they will document the technological uncertainty, how costs will be apportioned and evidenced, and what happens if HMRC challenges the claim. A fee structure based purely on the size of the claim, with no technical review, is a warning sign rather than a selling point.

Worked scenario: a software company's first claim

Illustrative scenario: a loss-making software company spends most of its budget developing a new data-processing method that resolves a genuine technical uncertainty, alongside routine feature development for existing, well-understood functionality. Only the former is likely to qualify; the routine work is not R&D for tax purposes even though it is technical and valuable to the business.

Before claiming, the company checks whether its R&D intensity meets the ERIS threshold, given it is loss-making, and whether it needs to submit a claim notification form because it has not claimed before. It documents the technical uncertainty project by project, apportions relevant staff time, and submits the additional information form alongside its Company Tax Return.

Common questions

Official sources & further reading

This guide draws on the official guidance below. Rules, fees and individual circumstances can change; check the relevant source before acting.

• GOV.UK: Corporation Tax - Research and Development (R&D) tax relief
• GOV.UK: Submit detailed information to support a Research and Development (R&D) tax relief claim
• GOV.UK: Tell HMRC that you're planning to claim Research and Development (R&D) tax relief

General UK information, primarily for private companies limited by shares. This is not personalised legal, tax or financial advice. An accountant or solicitor can help apply the rules to your situation.