For two decades, the UK had two parallel R&D tax credit schemes: SME R&D Relief, generous and refundable, and the R&D Expenditure Credit (RDEC) for larger companies. From 1 April 2024, the schemes were merged into a single regime — with a separate, enhanced regime for "R&D intensive" loss-making SMEs.
The new framework is fairer in some respects and tighter in others. Combined with HMRC's enforcement campaign against speculative claims, R&D relief in 2026 requires a fundamentally more rigorous approach than in 2019.
The merged R&D scheme
For accounting periods beginning on or after 1 April 2024, most R&D claims sit within the merged scheme:
- Above-the-line credit at a 20% rate on qualifying R&D expenditure.
- Effective net benefit of approximately 15% to 16.2% after corporation tax — depending on the company's corporation tax rate.
- Loss-makers can surrender the credit for a cash repayment, subject to PAYE/NIC capping.
Enhanced R&D Intensive Support (ERIS)
Loss-making SMEs whose qualifying R&D expenditure exceeds 30% of total expenditure can claim under the Enhanced R&D Intensive Support regime (the threshold was reduced from 40% to 30% for periods beginning on or after 1 April 2024):
- Additional deduction of 86% on qualifying R&D spend (creating a 186% total deduction).
- Surrender of resulting losses for a cash credit at 14.5%.
- Net cash benefit of roughly 27% of qualifying spend — much more generous than the merged scheme.
ERIS is targeted at genuinely R&D-heavy companies — biotech, deep-tech, pre-revenue pharma, advanced engineering, certain AI/ML startups. Eligibility must be tested every period, and changes in revenue or hiring mix can move a company in and out of intensity status.
Qualifying expenditure — what's in
- Staff costs (gross salaries, employer NIC, employer pension contributions) for personnel engaged directly in R&D.
- Externally provided workers (EPWs) — subcontracted labour from connected and unconnected providers, restricted to UK-based workers from 1 April 2024 unless qualifying exemptions apply.
- Software, data, and cloud computing costs (data and cloud were added in 2023).
- Consumable items used or transformed in the R&D process.
- Subcontracted R&D — now sitting with the principal contractor in most cases under the new merged scheme rules.
UK territoriality — the big change
For accounting periods beginning on or after 1 April 2024, expenditure on overseas EPWs and overseas contracted R&D is no longer qualifying unless the work could not reasonably have been done in the UK (geographic, regulatory, environmental, or social conditions). This change has caught out many tech businesses with overseas dev teams. The "could not reasonably" test is narrow.
The Advance Notification requirement
For new claimants and claimants who haven't claimed in the previous three years, an Advance Notification form must be submitted to HMRC within six months of the end of the accounting period to which the claim relates. Miss the window and you cannot claim. This is one of the most-missed deadlines in the new regime.
The Additional Information Form (AIF)
All R&D claims now require a separate AIF submitted before the company tax return. The AIF requires:
- Senior R&D contact details.
- Project descriptions: what scientific or technological advance was sought, what uncertainties existed, how they were resolved, and why a competent professional could not deduce the answer easily.
- Cost breakdowns by category.
- Agent details where a professional adviser has prepared the claim.
HMRC uses the AIF to triage claims. Vague or boilerplate AIFs are flagged for compliance check almost automatically.
The HMRC enforcement environment
HMRC has invested heavily in its R&D compliance team, and the rate of enquiry into R&D claims has risen sharply. Sectors under particular scrutiny include software development (where many claims sat in genuine commercial product work rather than scientific or technological advance), construction, and engineering consultancies.
Claims prepared by "no-win-no-fee" reclaim firms with limited technical or accounting credentials are now the highest-risk profile in the system. We have seen multiple cases of clients facing repayment demands and penalties on historical claims prepared by such firms.
What constitutes a qualifying advance — the BEIS guidance test
A qualifying R&D project must seek an advance in science or technology through the resolution of scientific or technological uncertainty that could not readily be resolved by a competent professional in the field. The test is restrictive in two respects:
- "Advance" means going beyond what is publicly known or readily deducible — not just being new to your company.
- "Uncertainty" must be genuine technical uncertainty, not commercial or financial uncertainty.
Software claims in particular need to articulate the technological gap and the genuinely novel approach. Implementing a known pattern using a popular framework is not, in HMRC's view, R&D, even if it took significant time and budget.
Best-practice R&D compliance
- Identify R&D projects in real time, not retrospectively. Time-tracking by project is far more defensible than month-end estimates.
- Use a competent professional (typically the project's senior technical lead) to write the technical narrative, not a salesperson.
- Document the scientific or technological uncertainty contemporaneously.
- Keep evidence of the competent professional review and any unsuccessful attempts (the "blind alleys" matter).
- Have a Chartered Accountant review every claim before submission.
How PushDigits approaches R&D
We act as a Chartered Accountancy firm, not a contingency reclaim shop. Our R&D engagements include a competent-professional interview, a written eligibility assessment, an AIF prepared to current HMRC standards, and ongoing support if HMRC raises an enquiry. Our business advisory team works alongside corporation tax to make sure claims integrate with year-end and forecasting.
If you are claiming R&D, considering it for the first time, or worried about a historic claim, get in touch for an honest assessment before HMRC's compliance team finds it first.