UK R&D Tax Credit Post-Merger RDEC 2026/27 Guide

Q What is the merged R&D tax relief scheme?

For accounting periods beginning on or after 1 April 2024 the old SME scheme and the old RDEC were replaced by two schemes with identical rules on what expenditure qualifies but different calculations (GOV.UK). Merged RDEC: a taxable expenditure credit of 20% of qualifying R&D expenditure, available to any trading company chargeable to Corporation Tax. Because the credit is taxed as trading income, its value after tax at the 25% main rate is 15% of the spend. ERIS (enhanced R&D intensive support): for loss-making SMEs whose relevant R&D expenditure is at least 30% of total relevant expenditure. They deduct an extra 86% of qualifying costs (186% in total) and can surrender the loss for a payable credit of up to 14.5% of the surrenderable loss (CTA 2009 s.1058). An ERIS-eligible company may choose the merged RDEC instead but cannot claim both on the same expenditure. In both schemes the credit paid out is limited by a PAYE cap of £20,000 plus 300% of the company's PAYE and NIC liabilities, unless an exemption applies.

Q What qualifies as R&D for UK tax purposes?

A project qualifies if it seeks an advance in a field of science or technology by resolving scientific or technological uncertainty (GOV.UK, and the Guidelines on the meaning of R&D for tax purposes). The advance must be in the overall field, not just for your business, and a competent professional in that field would recognise it as an appreciable improvement. An uncertainty exists when an expert cannot say whether something is technologically possible, or how to do it, from the available knowledge. From 1 April 2023 mathematical advances can count as science. Advances in the arts, humanities and social sciences (including economics) do not qualify. You must be able to explain the work done to overcome the uncertainty, including what failed.

Q What expenditure qualifies?

In-house R&D (CTA 2009 s.1042D): staffing costs, software, data licences, cloud computing services and consumable items, qualifying payments for externally provided workers, and certain payments to clinical trial volunteers, to the extent they are attributable to the R&D. Contracted-out R&D is covered by s.1042E. Where the company and an unconnected contractor or staff provider are involved, only 65% of the relevant payment counts (s.1131 for externally provided workers, s.1136 for contractors); connected-party payments count at the lower of the payment and the provider's own relevant costs (s.1129, s.1134). Payments to contractors and staff providers count only for R&D undertaken in the UK, unless the conditions needed for the R&D are not present in the UK (s.1136(3), s.1138A). Capital expenditure is not revenue R&D expenditure; see R&D allowances below. Staff or costs split between R&D and other work must be apportioned on a just and reasonable basis.

Q How does ERIS work for loss-making R&D-intensive SMEs?

Who: an SME under the EU definition as modified for R&D, which raises the limits to 500 staff and either €100 million turnover or €86 million balance sheet (CTA 2009 s.1119-1120), that makes a trading loss before the extra deduction and meets the 30% intensity condition. Connected companies' expenditure, worldwide, is included in the intensity test. How much: the surrenderable loss is the lower of the unrelieved trading loss and 186% of the qualifying expenditure (s.1055(2)); the credit is 14.5% of that, subject to the PAYE cap. The most it can be worth is 26.97% of qualifying spend (186% x 14.5%). Worked example: £500,000 of qualifying expenditure and a £200,000 trading loss before the extra deduction. The 86% extra deduction is £430,000, so the loss becomes £630,000; that is below the 186% cap, so all of it can be surrendered for a credit of £91,350. Under the merged RDEC the same spend gives a £100,000 credit before tax.

Q How do I claim R&D tax relief?

(1) Claim notification, if needed: for accounting periods beginning on or after 1 April 2023 you must notify HMRC if you are claiming for the first time or your last claim was made more than 3 years before the end of the claim notification period. That period starts on the first day of the period of account and ends 6 months after its end (CTA 2009 s.1142A; s.1042C(2) for RDEC, s.1045A for ERIS). Miss it and the claim is invalid. (2) Additional information form: every new claim needs one, submitted before or on the same day as the Company Tax Return, and sent first if on the same day; without it the claim is invalid (FA 1998 Sch 18 para 83EA). It asks for company details, the senior R&D contact, every agent involved, cost breakdowns and project descriptions. (3) Company Tax Return (CT600) with the R&D claim. First-time SME claimants can apply for advance assurance, which covers the first 3 accounting periods (GOV.UK). If you use an adviser, the company remains responsible for the accuracy of the claim.

Q What penalties apply to an inaccurate R&D claim?

An over-claim is an inaccuracy in the Company Tax Return, so the general penalty rules in Finance Act 2007 Schedule 24 apply. For a domestic (category 1) inaccuracy the maximum penalty is 30% of the potential lost revenue for careless action, 70% for deliberate action and 100% for deliberate and concealed action (para 4), reduced for disclosure. HMRC has a separate service to tell it about, and repay, R&D relief that was claimed in error. The best protection is a claim that a competent professional in the field would recognise: name the uncertainty, show the work, and apportion costs on a documented basis.

Q Software development R&D: what qualifies and what does not?

Software projects follow the same test as any other: is the company seeking an advance in computer science or technology by resolving a technological uncertainty that a competent professional could not readily resolve? Using existing technology, libraries, platforms or APIs in a routine way to build a product, even a commercially novel one, is not an advance in the field. Work that tries to overcome a genuine limitation of current technology, where it was not known whether or how the result could be achieved, can qualify. The question is what the work sought to resolve, not the labels used to describe it, and HMRC expects the project description in the additional information form to explain the uncertainty and the approaches tried.

Q Can I claim R&D relief for an earlier year?

Yes, within the time limit: a claim can be made, amended or withdrawn up to two years after the end of the period of account, where that period is 18 months or less (FA 1998 Sch 18 para 83E). For example, the two years beginning with 31 March 2025, the last day of a period ending then, run to 30 March 2027. If you need to make a claim notification and the 6-month notification window has passed, the claim cannot be made at all. GOV.UK's example: for a period of account of 1 January 2024 to 31 December 2024 the last date of the claim notification period is 30 June 2025.

Q How does R&D relief interact with Patent Box?

They apply at different stages and can both be claimed. R&D relief applies to qualifying R&D spending. The Patent Box (CTA 2010 Part 8A) lets a company that elects in pay Corporation Tax at an effective 10% on the relevant profits from qualifying patents, broadly those granted by the UK Intellectual Property Office, the European Patent Office or certain EEA states (s.357BB), worked out using an R&D fraction that rewards the company's own development work. The election must be made within 2 years after the end of the accounting period in which the profits arose (GOV.UK Patent Box guidance).

Q What about capital spending on R&D?

Capital expenditure on R&D related to the company's trade, such as laboratory equipment or facilities, can qualify for research and development allowances under Capital Allowances Act 2001 Part 6: an allowance equal to the qualifying expenditure in the period it is incurred (s.441). Land does not qualify (s.440), nor does the provision of a dwelling, nor buying rights in, or arising from, R&D (s.438), such as acquired patents. These allowances sit alongside the expenditure credit, which covers revenue costs such as staff and consumables.

Q How are R&D claims affected by group structures?

Group and linked companies matter in three places. SME status is tested with partner and linked enterprises under the EU definition (s.1119-1120). The ERIS intensity test includes the expenditure of connected companies worldwide, so an R&D-heavy subsidiary inside a larger group may not reach 30%; payments between connected companies are left out of total expenditure. Intra-group work: payments to a connected contractor or staff provider count at the lower of the payment and the provider's own relevant costs (s.1129, s.1134), so a mark-up is not relievable. Trading losses, including those increased by ERIS, can be surrendered to other group companies as group relief (CTA 2010 Part 5) if not surrendered for the credit.