R&D tax relief after the shake-up: what the merged scheme means for small companies

Research and development tax relief has been the quiet workhorse of UK startup funding for years — a way of clawing back a slice of engineering spend through the corporation tax system. In April 2024, the system changed: the old SME scheme and the larger RDEC scheme merged into a single regime for accounting periods starting on or after 1 April 2024.

What merged, and what it means

Under the merged scheme, most companies claim an expenditure credit calculated as 20 per cent of qualifying R&D spend. The credit is taxable, which is why the effective benefit works out lower than the headline number — the precise value depends on your tax position and whether you are profitable or loss-making.

The important carve-out is ERIS — the enhanced R&D intensive support — which preserves a more generous route for loss-making SMEs whose qualifying R&D expenditure is at least 30 per cent of total expenditure. If your company is young, technical and burning cash on development, that is likely to be you.

What counts as R&D

R&D for tax purposes is narrower than the word suggests and broader than most founders assume. It means work that seeks an advance in science or technology by resolving uncertainty that a competent professional could not readily solve. Building a routine website is not R&D. Building a novel recommender system where the solution was genuinely uncertain probably is. The boundary cases are where specialists earn their fees.

• Qualifying costs typically include staff costs, software, consumables, and a share of certain subcontracted work.
• Costs that generally do not qualify include rent, marketing, and routine data collection.

The compliance climate has hardened

HMRC has tightened scrutiny of R&D claims considerably after years of abuse. Expect more questions, more checks, and a requirement to name the competent professional behind the claim and describe the scientific uncertainty in the additional information form that now accompanies every claim. Claims that read like marketing copy are the ones that get opened up.

The detailed rules — qualifying expenditure, the ERIS thresholds, the additional information form — are in HMRC’s R&D guidance on gov.uk. The figures here are correct at the time of writing.

Building a claim that survives scrutiny

The strongest claims are written by the people who did the work. Keep contemporaneous records — sprint notes, experiment logs, failed approaches — because HMRC asks for evidence that uncertainty existed, not just that code was written. The additional information form now required with claims asks you to name the competent professional and describe the advance sought. If you cannot say plainly what was uncertain and how you tried to resolve it, that is your answer about whether to claim.

Budget for the claim like any other project: it takes time from engineers and finance, often runs to weeks of back-and-forth, and arrives as a credit — not cash on day one. Companies that treat it as a windfall tend to file late and scramble; companies that treat it as a recurring part of the finance calendar barely notice the overhead.