What Changed and What You Can Still Claim
A few months ago, a founder rang me at Edward Harris Accountants in Oldham, fairly deflated. His software business had claimed R&D relief for years, and a friend had just told him, “The good stuff’s gone, don’t bother anymore.”
I asked him one question: “Have you looked at the new rules, or just heard about them?” Silence. He’d only heard about them.
That’s the problem with R&D tax relief right now. The scheme has been reshaped so much that most of what’s floating around is either outdated or half-remembered. So let’s sort it out properly.
Is R&D Tax Relief Still Worth Claiming?
Yes, and for a lot of smaller companies it’s still one of the most valuable reliefs available. But the math is different from what you might remember.
For accounting periods starting on or after 1 April 2024, the old SME scheme and the old RDEC scheme were folded into one merged scheme. There’s now a single 20% above-the-line credit for most companies. And there’s a separate enhanced route, called ERIS, for loss-making R&D-intensive SMEs.
Those are the two routes. Nothing else.
How the Merged Scheme Works
The merged scheme gives you a 20% credit on qualifying R&D spend. That credit is taxable, though, so what you keep depends on your Corporation Tax rate.
If you’re paying the main rate of 25%, you’re left with roughly 15p per £1 of qualifying spend. If you’re on the 19% small profits rate, it’s about 16.2p. So on £100,000 of qualifying costs, you’re looking at somewhere around £15,000 to £16,200 in net benefit.
Compare that to the old SME scheme, which at its peak gave an additional 130% deduction. It’s a noticeably smaller prize. Honestly, I won’t pretend otherwise. But smaller isn’t zero, and many businesses still leave it unclaimed.
What Is ERIS, and Who Qualifies?
ERIS stands for Enhanced R&D Intensive Support. It exists to soften the blow for the smallest, most research-heavy companies.
To qualify, you generally need to be a loss-making SME, and your qualifying R&D spend must make up at least 30% of your total relevant expenditure. If you meet that, you can claim an enhanced deduction of 86% on top of your spend, plus a payable credit of 14.5% on the surrenderable loss. The combined effect works out to roughly 27p per £1, and the credit is paid in cash rather than taxed.
That’s a big difference from the merged scheme’s 15p to 16p. For a loss-making deep-tech or biotech startup, ERIS can be the thing that keeps the lights on.
There’s a catch worth watching, though. The payable credit is subject to a PAYE cap, so if you’ve got few employees, the amount you can actually receive can be limited. And if your intensity slips below 30% for a second year running, you drop back to the merged scheme.
Do you actually know your R&D intensity percentage? Most founders I speak to have never calculated it, and it can be the difference between two completely different claim values.
What Actually Counts as R&D?
This is where people get tripped up. R&D for tax purposes isn’t the same as “being innovative” or “building something new for our business.”
To qualify, your project needs to seek an advance in science or technology, not just for your company but in the overall field. You need to be resolving genuine scientific or technological uncertainty, something a competent professional couldn’t have worked out in advance. Routine development, copying an existing product, or tweaking something that already works doesn’t qualify.
Qualifying costs typically include staff costs, externally provided workers, consumables, software, and, since the reforms, certain data and cloud computing costs. Subcontractor costs and overseas work are more restricted than they used to be, which is something a lot of businesses with offshore developers need to check carefully.
A Quick Real-World Example
Think of a small software company, about eight staff, building a tool that processes messy, unstructured data in a way nobody’s quite managed before.
Their developers spent months on a core algorithm, failing repeatedly before finding an approach that worked. That trial-and-error process, driven by genuine technical uncertainty, is the heart of qualifying R&D. But the same company also spent time on the user interface, onboarding screens, and a standard login system. None of that is R&D.
When we went through their year, roughly a third of their payroll time qualified. Not all of it. Not none of it. That’s typical, and it’s exactly why claiming everything is as risky as claiming nothing.
The Admin Side Has Tightened Considerably
Here’s what most people miss: the rules around claiming have changed as much as the rates.
Before you submit a claim, you now need to file an Additional Information Form, which asks you to describe the projects, the uncertainties, and how costs were calculated. If you’re a first-time claimant, or haven’t claimed in the past three years, you’ll also need to submit a claim notification within six months of the end of the accounting period. Miss that, and the claim can be rejected outright.
Claims also need to be made within two years of the end of the accounting period they relate to. So if you’ve got older periods you’ve never looked at, don’t leave it too long.
HMRC Is Looking Closely
Let’s be honest about something. R&D relief has a reputation for being abused, and HMRC has responded with a much tougher compliance approach.
I’ve seen businesses get into serious difficulty after using a “no win, no fee” claims company that submitted aggressive or poorly evidenced claims. When HMRC opens an enquiry, it’s the company that’s on the hook, not the agent who prepared the claim. Penalties and repayment demands land with you.
In my experience, a good claim is boring. Clear project descriptions. Contemporaneous notes. Time records that actually reflect who did what. If you can’t evidence the uncertainty you were solving, the claim won’t hold up under scrutiny.
Practical Steps Before You Claim
Start by identifying your genuine projects, rather than starting from the pound figure you hope to claim. Document the technical challenges as they happen, not eighteen months later. Keep a record of who worked on what, and why it was uncertain.
Then work out which scheme applies. Check whether you’re loss-making, whether you meet the 30% intensity test, and whether your payroll is large enough that the PAYE cap isn’t going to bite.
Finally, get it reviewed by someone who’ll actually challenge your assumptions. A claim that’s been properly stress-tested is far easier to defend than one that’s been rushed out by a third party.
My Honest Take
I think the loudest voices around R&D tax relief are either overselling it or writing it off entirely, and both are wrong. The relief is smaller than it was, and the compliance burden is heavier. But for companies doing real technical work, particularly loss-making ones that can reach ERIS, it’s still genuinely valuable.
The businesses that will do well from here are the ones that treat R&D like any other part of their financial discipline: tracked, evidenced, and reviewed regularly. If you’re doing genuine technical work and not claiming, you’re leaving money behind. And if you’re claiming without proper evidence, you’re borrowing trouble that HMRC will happily collect later.
