A plain-English guide for UK businesses – updated for the 2024 merged scheme
If your business invests in innovation, developing new products, improving processes, or tackling technical challenges, there is a very good chance you could be entitled to a significant tax benefit from HMRC. Yet thousands of UK businesses claim nothing each year, simply because they don’t realise they qualify.
R&D tax credits are one of the most valuable reliefs available to UK limited companies. Depending on your situation, you could recover a meaningful portion of what you’ve spent on qualifying work – either as a reduction in your Corporation Tax bill or as a direct cash payment from HMRC.
This guide explains how it all works in plain English, including the important changes introduced from April 2024.
What Are R&D Tax Credits?
R&D tax credits are a government incentive designed to encourage UK businesses to invest in innovation. They take the form of a Corporation Tax relief – meaning they can reduce the amount of tax your company owes, or in some cases result in a cash payment back to your business even if you’re currently running at a loss.
The scheme was first introduced in 2000 for small and medium-sized businesses, with a large company scheme following in 2002. The core idea has always been the same: reward businesses that take on technical risk in the pursuit of progress.
We are a full spectrum tax brokerage – contact us today to see if you are eligible for a R&D Tax reclaim
How Does It Work?
When your business spends money on qualifying R&D activity, you can claim a proportion of that spend as a tax credit. The credit either reduces your Corporation Tax liability, or – if you have no tax to offset – can be paid to you as a cash sum by HMRC.
To be eligible, three things must be true:
- Your business must be a UK-registered limited company subject to Corporation Tax
- You must have carried out qualifying R&D activities
- You must have incurred genuine costs related to those activities
Important: What Changed in April 2024?
The R&D tax credit landscape has shifted considerably in recent years. For accounting periods beginning on or after 1 April 2024, the previous two schemes – one for SMEs and one for larger companies — have been merged into a single unified system, commonly referred to as the Merged RDEC Scheme.
Under the merged scheme, a headline credit rate of 20% applies to qualifying R&D expenditure. Because this credit is itself taxable, the net benefit works out at approximately:
- ~15% if your company is profitable
- ~16.2% if your company is currently loss-making
There is also a separate, more generous rate available for highly R&D-intensive businesses. If your qualifying R&D expenditure accounts for at least 30% of your total company spend, and your company is loss-making, you may qualify for Enhanced R&D Intensive Support (ERIS) — worth up to 27% of your qualifying expenditure.
| Company Type | Scheme | Net Benefit |
|---|---|---|
| Profit-making company | Merged RDEC | ~15% |
| Loss-making company | Merged RDEC | ~16.2% |
| Loss-making SME (R&D = 30%+ of total spend) | ERIS | Up to 27% |
Does My Business Qualify?
This is the question we get asked most often – and the answer surprises a lot of business owners. R&D for tax purposes is much broader than most people assume. You don’t need to be a pharmaceutical company or a tech giant.
What matters is whether your work involved attempting to resolve genuine scientific or technological uncertainty. In practice, that means projects where:
- You were creating or improving a product, process, service or piece of software
- The outcome wasn’t certain at the outset – a competent professional in the field couldn’t simply look up the answer
- You were advancing knowledge or capability in your field, not just applying what’s already widely known
Qualifying work takes place across a huge range of industries; manufacturing, engineering, software development, food production, construction, agriculture, and professional services among them. Importantly, the project doesn’t even have to have succeeded. Unsuccessful R&D can still qualify.
Activities that are generally not eligible include work in the arts, humanities or social sciences, as well as care homes, personal training services, retail and hospitality.
What Costs Can You Include?
Once you’ve established that qualifying R&D activity took place, a range of associated costs can be included in your claim:
- Staff costs – salaries, employer National Insurance contributions and pension contributions for employees working on the project
- Subcontractors and freelancers involved in the qualifying work (subject to rules under the merged scheme)
- Materials and consumables that were used up or transformed during the R&D process
- Software licences, relevant data costs and qualifying cloud computing expenses
- Payments to clinical trial participants
One important note under the merged scheme: from April 2024, there are stricter restrictions on overseas costs. In most cases, R&D work carried out abroad – including by overseas subcontractors – will no longer qualify for relief. There are limited exceptions, but this is something to be aware of if your team is internationally distributed.
We are a full spectrum tax brokerage – contact us today to see if you are eligible for a R&D Tax reclaim
How Much Could You Receive?
It varies depending on your spend, your company’s size, and whether you’re profit-making or loss-making. According to HMRC’s own published statistics for the 2023/24 tax year, the average claim under the SME scheme was around £85,000, while average claims under the large company scheme came in at around £438,000.
Even for smaller businesses with more modest R&D budgets, the sums involved can make a real difference – funding further investment, supporting new hires, or simply improving cashflow at a critical moment.
Has the Relief Become Less Valuable?
It’s true that R&D tax credits have become less generous for many SMEs compared to a few years ago. Rates have come down, compliance requirements have increased, and HMRC is scrutinising claims more carefully than ever before.
But the relief remains substantial. For businesses carrying out genuine qualifying work, a well-prepared claim continues to deliver meaningful financial benefit. The key is making sure your claim is accurate, well-documented and professionally supported, particularly now that HMRC requires an Additional Information Form to be submitted alongside every new claim.
Vague project descriptions, poorly defined cost categories and missing paperwork are the most common reasons claims are delayed or challenged. Getting it right first time matters more than ever.
How Do You Make a Claim?
R&D claims are made through your Company Tax Return (CT600), submitted to HMRC. For accounting periods from April 2024 onwards, you must also submit a separate Additional Information Form before or alongside your return.
If this is your first time claiming – or if a significant period has passed since your last claim, you may also need to submit a Claim Notification Form in advance. Missing the notification deadline could prevent you from claiming for that period entirely, so timing is critical.
Given the compliance requirements now in place, working with a qualified tax professional who has hands-on experience with R&D claims is strongly advisable. The cost of professional advice is typically far outweighed by the additional value a thorough, well-prepared claim recovers.
Ready to Find Out What Your Business Could Claim?
We offer a free, no-obligation consultation for businesses who want to explore whether they qualify for R&D tax credits.
We are a full spectrum tax brokerage – contact us today to see if you are eligible for a R&D Tax reclaim
Disclaimer: This article is intended as general guidance only and does not constitute formal tax advice. R&D tax credit eligibility depends on the specific circumstances of your business.