R&D tax credits
The two old schemes became one for accounting periods starting on or after 1 April 2024. If you last claimed under the SME scheme, almost everything you knew about the arithmetic has changed.
Updated 13 September 2026 · Tax year 2026/27
What is R and D tax credits, in one paragraph #
A Corporation Tax relief for companies that try to resolve genuine scientific or technological uncertainty. It is not a grant and not a reward for being innovative in the commercial sense: it is specifically for work where a competent professional in the field could not readily say how to achieve the result.
An R&D tax credit calculation example #
Take £100,000.00 of qualifying expenditure, and a company paying Corporation Tax at 25%.
| Merged scheme | ERIS, loss-making and R&D intensive | |
|---|---|---|
| Qualifying spend | £100,000.00 | £100,000.00 |
| How the relief works | 20% expenditure credit | 186% deduction, then 14.5% payable credit |
| Headline amount | £20,000.00 | £186,000.00 deduction |
| Taxable? | Yes, the credit is taxable | The payable credit is not |
| Net benefit | £15,000.00 | £26,970.00 |
| As a share of spend | 15% | 27% |
The merged scheme #
One scheme for companies of all sizes, for accounting periods beginning on or after 1 April 2024. It works like the old RDEC: an expenditure credit of 20% of qualifying costs, recognised above the line in operating profit.
How to account for R&D tax credits changed with it. Because the credit sits in operating profit rather than in the tax line, it increases reported profit before tax, and is itself taxable. That is the main practical difference from the old SME scheme.
Enhanced R&D Intensive Support #
ERIS is the alternative for loss-making SMEs that spend heavily on R&D. Two conditions: the company must be loss-making, and qualifying R&D must be at least 30% of total expenditure.
Where it applies, the company deducts an extra 86% of qualifying costs, giving a 186% deduction in total, and can surrender the resulting loss for a payable credit of 14.5%. On our £100,000.00 example that is £26,970.00 in cash, roughly 27% of what was spent.
What qualifies for R&D tax credit #
The test is an advance in science or technology, and uncertainty a competent professional could not readily resolve. Applied honestly, that excludes a lot of good work.
| Usually qualifies | Usually does not |
|---|---|
| Developing a new material or process | Applying an existing technique in a new place |
| Achieving performance beyond what existing tools manage | Building a website or a standard app |
| Resolving genuine technical uncertainty with an uncertain outcome | Work that was difficult but whose method was known |
| Prototyping where the approach itself is unproven | Cosmetic or aesthetic improvement |
Qualifying costs are staff costs, agency workers, consumables used up in the R&D, software, data and cloud computing, and some subcontracted work. Rent, capital equipment and the cost of producing the finished commercial product do not qualify.
R&D tax credits how to claim #
How to apply for R&D tax credits is now a three-step process, and the first step is the one that invalidates claims.
- Advance notification. Most companies must tell HMRC they intend to claim, within 6 months of the end of the accounting period. Miss it and the claim is not valid, however good the R&D was
- Additional information form, submitted before the Company Tax Return, describing the projects, the uncertainty and the advance sought
- The claim itself, in the Company Tax Return
Be wary of advisers working purely on a percentage of the claim who tell you everything qualifies. Where a claim is wrong, HMRC pursues the company, not the adviser.
Where it sits with your other Corporation Tax #
R&D relief reduces the Corporation Tax on your taxable profit, so it interacts with everything else in the computation. The Corporation Tax calculator shows the underlying liability including marginal relief, and capital allowances deal with the equipment side, which R&D relief does not cover.
Common questions #
What is R and D tax credits?
A Corporation Tax relief for companies resolving genuine scientific or technological uncertainty. Under the merged scheme it gives an expenditure credit worth 20% of qualifying costs, which is taxable, so the net benefit is around 15% of what you spent.
What qualifies for R&D tax credit?
Work seeking an advance in science or technology where a competent professional could not readily deduce the answer. Routine development, applying existing techniques and cosmetic improvements do not qualify, however difficult or expensive they were.
How do R&D tax credits work under the merged scheme?
One scheme for companies of all sizes, for accounting periods beginning on or after 1 April 2024. It replaced the separate SME and RDEC schemes. The credit is taxable and shown above the line in the accounts.
What is Enhanced R&D Intensive Support?
ERIS, an alternative route for loss-making SMEs whose qualifying R&D is at least 30% of total expenditure. It gives an extra 86% deduction, so 186% in total, and a payable credit of 14.5% of the surrendered loss.
How to apply for R&D tax credits?
Through the Company Tax Return, with an additional information form submitted to HMRC before the return. Most companies also have to notify HMRC in advance of the intention to claim, within six months of the end of the accounting period.
How much are R&D tax credits worth?
On £100,000 of qualifying spend the merged scheme credit is £20,000, worth about £15,000 after Corporation Tax. Under ERIS the same spend can be worth up to £26,970 in cash.
Do R&D tax credits apply to software development?
Sometimes. R&D tax credits for software development qualify where the work resolves genuine technical uncertainty, such as new algorithms or performance beyond what existing tools achieve. Building a website or integrating known components does not qualify.
Can construction companies claim R&D tax credits?
Yes, where the work is genuinely developmental: new materials, methods that overcome technical constraints, or novel structural solutions. R&D tax credits construction claims fail when they describe skilled but routine building work.
How to account for R&D tax credits?
The merged scheme credit is above the line, recognised in operating profit rather than as a tax reduction, which is why it affects reported profit as well as the tax charge. It is itself taxable.