Research and Development (R&D) tax relief lets UK companies reduce their Corporation Tax bill — or receive a cash payment — for qualifying R&D expenditure. From April 2024, the SME and RDEC schemes me
R&D Tax Relief from April 2024 — The Merged Scheme
From 1 April 2024, the SME R&D scheme and RDEC were merged into a single 'merged scheme' for most companies. A separate 'SME intensive scheme' remains for qualifying loss-making SMEs with high R&D intensity.
The Merged Scheme (From April 2024)
Aspect
Merged scheme rate
RDEC credit rate
20% of qualifying R&D expenditure
Effective benefit (profit-making company at 25% CT)
15% after-tax (net benefit)
If loss-making — can convert to cash
Credit capped at PAYE/NI liability
R&D intensive SME scheme
Enhanced deduction remains — see below
R&D Intensive SME Scheme
Loss-making SMEs where R&D spending is at least 30% of total expenditure can still claim under the enhanced SME scheme:
Effective cash benefit: Up to 27% of qualifying R&D spend for loss-making intensive SMEs
Qualifying R&D Expenditure
Qualifying costs include: staff costs (salaries, NIC, pension), subcontracted R&D, consumables (materials used in R&D), software, utilities (proportion used for R&D), externally provided workers (65% of costs). Subcontracted R&D: 65% relief if subcontracting to an unconnected party.
What Counts as R&D
HMRC uses BEIS guidelines: R&D must seek an advance in science or technology, must face scientific or technological uncertainty, and the work must overcome that uncertainty. It does NOT include social sciences, arts, or humanities. Software development can qualify if it achieves a technological advance.
Frequently Asked Questions
What is the R&D tax relief rate in 2025/26?
Under the merged scheme (from April 2024): 20% RDEC credit on qualifying expenditure. For a profit-making company at 25% Corporation Tax, this gives an effective benefit of 15% after-tax. R&D intensive SMEs (30%+ R&D ratio, loss-making) can claim a 14.5% cash credit under the enhanced SME scheme.
What changed about R&D tax relief from April 2024?
The SME and RDEC schemes merged into a single scheme. Most companies now claim a 20% RDEC credit. The old SME scheme (186% enhanced deduction, 33% effective benefit for loss-making SMEs) was replaced. Only R&D-intensive loss-making SMEs (R&D ≥ 30% of total costs) retain enhanced benefits.
What types of costs qualify for R&D tax relief?
Qualifying costs: staff wages (including employer NI and pension), materials and consumables used in R&D, software licenses used for R&D, utilities attributable to R&D, subcontracted R&D (65% relief), externally provided workers (65%). Capital expenditure does not qualify unless subject to R&D Allowances.
Can software development companies claim R&D relief?
Yes, if the software development seeks to achieve a technological advance and involves resolving scientific or technological uncertainty. Routine software development, porting to new platforms, or developing software using established techniques generally does not qualify.
How do I make an R&D claim?
Include the claim in your Corporation Tax return (CT600). File the additional information form (required from August 2023). Claims must be made within 2 years of the end of the accounting period. HMRC is increasingly scrutinising claims — ensure you have contemporaneous documentation.
What is the R&D intensive SME definition?
An SME (under 500 employees, turnover under €100m or balance sheet under €86m) is R&D intensive if R&D expenditure is at least 30% of total expenditure. The 40% threshold was reduced to 30% from April 2024. Only loss-making intensive SMEs benefit from the enhanced rate.
Can a startup claim R&D tax relief?
Yes, including pre-revenue startups. Loss-making companies can surrender losses for a cash repayment, subject to the PAYE cap (credit limited to 3x the company's total PAYE and NI liability for the period, plus £20,000).
What is the PAYE cap for R&D credits?
Cash RDEC repayments for loss-making companies are capped at the greater of: (a) 3x the company's total PAYE/NI liability for the period, plus (b) £20,000. This prevents companies with few/no UK employees from receiving disproportionate cash repayments.