R&D Tax Credits and Relief: A Complete Guide for UK Businesses

R&D Tax Relief Support: Claim Preparation, HMRC Compliance and Enquiry Management

R&D tax relief is one of the most valuable financial incentives available to UK businesses — and one of the most frequently misunderstood. A qualifying company can receive a cash payment or a reduction in its corporation tax bill simply for doing the kind of innovative technical work that is part of its normal operations. For many technology, engineering, life sciences and manufacturing businesses, the amounts involved run to hundreds of thousands of pounds annually.

The problem is that the rules have changed significantly — twice — in quick succession. The April 2023 and April 2024 reforms introduced a new pre-filing notification requirement, merged the old SME and RDEC schemes into a single framework, and tightened the rules on what costs qualify. HMRC has simultaneously increased its compliance activity, and the number of R&D enquiries being opened has risen sharply.

Much of the content available on R&D tax relief was written before these changes and has not been updated. This guide reflects the rules as they stand for accounting periods beginning on or after 1 April 2024, and is written specifically for company owners, CEOs and Finance Directors who want to understand what their business can claim, what the process involves, and why getting the right finance leadership in place makes a material difference to the outcome.

What Is R&D Tax Relief and Who Can Claim It

R&D tax relief is a UK government incentive, administered by HMRC, that allows companies to claim enhanced tax deductions — or in some cases a direct cash payment — for expenditure on qualifying research and development activities. It is governed by the Corporation Tax Act 2009 and HMRC’s guidance in the Corporate Intangibles Research and Development Manual (CIRD).

Any UK company that pays corporation tax can potentially claim R&D relief, provided it is carrying out qualifying R&D activities. The activities do not need to be in a laboratory or R&D department — they simply need to involve seeking to achieve an advance in science or technology by overcoming technical uncertainty. Software development, engineering innovation, product development and process improvement can all qualify, provided the work meets HMRC’s definition.

What counts as R&D for HMRC purposes

HMRC uses the definition set out in the Department for Science, Innovation and Technology (DSIT) guidelines. For a project to qualify, it must:

• Seek to achieve an advance in overall knowledge or capability in a field of science or technology — not just an advance for the company itself
• Involve overcoming scientific or technological uncertainty — meaning the solution was not readily deducible by a competent professional in the field
• Be carried out by a team that has the scientific or technological competence to attempt it

Crucially, the project does not need to succeed. A failed R&D project that genuinely attempted to overcome technical uncertainty is just as claimable as a successful one. What matters is the nature of the work, not the commercial outcome.

Who cannot claim

Companies that are not subject to UK corporation tax cannot claim. Partnerships and sole traders are excluded. Subcontracted R&D work is claimable by the company that commissions it in certain circumstances, but the rules on subcontractors changed significantly in April 2024 and require careful analysis. Overseas work is now largely excluded unless the location was necessary for the R&D — a significant tightening from the pre-2024 position.

The 2024 Merged Scheme — The Biggest Change to R&D Relief in a Generation

For accounting periods beginning on or after 1 April 2024, the old separate SME R&D relief and Research and Development Expenditure Credit (RDEC) schemes have been merged into a single framework. HMRC refers to this as the merged scheme. Understanding what has changed — and what has stayed the same — is now essential for any company making an R&D claim.

What the old system looked like

Before April 2024, there were two separate schemes running in parallel:

• SME R&D relief: For companies with fewer than 500 employees and either turnover under €100m or gross assets under €86m. Enhanced deduction of 130% on qualifying costs (reduced to 86% in April 2023), with a payable credit of 33.35% for loss-making companies (reduced to 10% in April 2023 for most companies).
• RDEC (Research and Development Expenditure Credit): For large companies and SMEs that had received grants or carried out subcontracted R&D. A taxable above-the-line credit of 13% (increased to 20% in April 2023).

This two-track system created complexity and, in some cases, anomalies — particularly where a company straddled the SME/large company boundary or had received Innovate UK grants that forced it onto RDEC terms.

What the merged scheme changes

Under the merged scheme, virtually all companies now claim under a single set of rules based on the old RDEC framework. The key features are:

• Credit rate: 20% — a taxable above-the-line credit equal to 20% of qualifying R&D expenditure. For a profitable company paying corporation tax at 25%, the net benefit after tax is 15% of qualifying spend.
• Above-the-line: The credit appears as income in the profit and loss account before tax, improving EBITDA — a meaningful difference for PE-backed companies and businesses being assessed on earnings multiples.
• Payable for loss-making companies: Companies in a loss position can receive the credit as a cash payment from HMRC, subject to a PAYE/NIC cap tied to the company’s payroll costs.
• Subcontractor costs now restricted: The merged scheme significantly restricts the ability to claim for overseas subcontractor and externally provided worker (EPW) costs. Only costs where the overseas location was necessary for the R&D (due to geography, environment or legal requirement) now qualify. This is a major change for technology companies that use offshore development teams.

What has not changed

The definition of qualifying R&D activity has not changed. The types of costs that qualify — staff costs, consumables, software, subcontractors — remain broadly the same, with the overseas restriction being the significant exception. The two-year window for filing a claim in the company tax return has not changed. And HMRC’s ability to open compliance enquiries has not changed — though it is using it far more actively than before.

The R&D Claim Notification Form — The New Pre-Filing Requirement Most Businesses Miss

Of all the changes introduced since 2023, the claim notification form is the one most likely to catch companies out — because it is a pre-filing requirement that must be submitted before the company tax return, not as part of it.

From 1 August 2023, companies making an R&D claim for the first time, or making a claim after a gap of three or more years, must submit a claim notification to HMRC within six months of the end of the accounting period in which the R&D took place. Miss this deadline and you cannot make the claim at all — there is no late filing provision.

Who needs to submit the notification form

• Companies claiming R&D relief for the first time
• Companies that last claimed three or more years ago (measured by reference to the accounting period end dates)
• Companies that are not sure whether they have claimed before — in which case submitting the notification is the safe option, as there is no penalty for submitting when not required

Companies that have claimed continuously in each of the last three years do not need to submit a notification for the current period, provided there has been no gap. However, any break in the annual claiming cycle — including a year where qualifying costs were lower than expected and the company chose not to claim — restarts the notification requirement.

What the notification form contains

The form is submitted through HMRC’s online portal and requires:

• The company’s name, UTR and accounting period dates
• The name and contact details of the main senior internal R&D contact
• The name and contact details of any agent involved in the claim
• A brief description of the R&D activity being claimed for

It is not a complex document, but it requires a responsible senior person — typically the Finance Director or CFO — to sign off and submit it. The deadline management alone makes it an FD responsibility: missing a notification deadline costs the company its entire R&D claim for that period.

What Costs Qualify Under the Merged Scheme

The categories of qualifying expenditure under the merged scheme are largely unchanged from the pre-2024 rules, with the important exception of overseas costs. A clear understanding of what qualifies — and what does not — is essential to building a claim that HMRC will accept without challenge.

Qualifying cost categories

For full HMRC guidance on qualifying costs, see HMRC’s R&D relief guidance on GOV.UK.

How to Calculate Your R&D Tax Relief — A Worked Example

Under the merged scheme, the calculation is more straightforward than under the old two-track system. Here is a worked example for a profitable SME with a 31 March 2025 year-end, making a claim under the standard merged scheme rate.

For a loss-making company at the standard merged scheme rate (not ERIS-eligible), the gross credit of £100,000 would be payable in cash from HMRC, subject to a cap based on the company’s PAYE and NIC liabilities for the year. For an ERIS-eligible R&D-intensive SME, the payable credit rate is 27% rather than 20%, producing a gross credit of £135,000 on the same £500,000 of qualifying spend.

These figures illustrate why the identification of all qualifying cost categories — including cloud costs and correctly apportioned staff time — and the classification of the company under the right rate matters significantly to the final amount. An experienced Finance Director will ensure all qualifying costs are captured, not just the most obvious ones.

The Additional Information Form — What HMRC Now Requires Before Every Claim

Since August 2023, every R&D claim must be accompanied by an additional information form (AIF), submitted through HMRC’s online service before — or at the same time as — the company tax return. This is a separate submission from the CT600 and replaces the approach of embedding R&D narrative in the tax return or providing it only on request.

The AIF requires a project-level description of the R&D activities being claimed, together with a breakdown of costs by category. Specifically, it requires:

• A contact name for the qualifying R&D activities — this must be a named individual, not just the company or its agent
• A description of each R&D project, including the scientific or technological advance being sought and the uncertainties being overcome
• A breakdown of qualifying costs by category: staff, EPWs, subcontractors, materials, software, data and cloud
• Confirmation of the relief being claimed (merged scheme, ERIS or, for transitional periods, old scheme)

The AIF cannot be submitted by an agent without the company’s involvement — a named senior individual at the company must be identified and must understand the content being submitted. This requirement means that R&D claims can no longer be entirely delegated to an external R&D boutique without the Finance Director or CFO being materially engaged in the process. That is a deliberate change on HMRC’s part.

The Finance Director’s Role in Preparing and Defending an R&D Claim

There is a common misconception that R&D tax relief is purely a specialist task — something handled entirely by an external R&D consultancy or the company’s accountants, with minimal involvement from internal finance. That model was always suboptimal, and the post-2023 reforms have made it untenable.

The notification form, the additional information form and the increased HMRC scrutiny all require a senior finance professional inside the business to own the R&D claim process. An external specialist can advise on technical eligibility and help prepare the documentation, but the company’s FD or CFO must now be the internal accountable person.

What an experienced FD brings to an R&D claim

Qualifying cost identification. An FD reviews the full cost base — not just the obvious R&D payroll — to identify all qualifying expenditure. Cloud computing costs, staff time on qualifying projects, consumables and UK subcontractor payments are frequently under-claimed. An FD with experience of R&D claims will build a cost-capture process across the year rather than reconstructing it from memory at year-end.

Technical narrative preparation. The AIF project descriptions need to be written in a way that satisfies HMRC’s technical eligibility criteria — specific about the advance being sought and the uncertainty being overcome, without using generic phrases that HMRC’s compliance teams immediately flag. An FD who has submitted AIFs before knows the difference between a description that passes and one that prompts an enquiry.

Notification deadline management. The claim notification form deadline — six months after the period end — sits entirely outside the normal tax return preparation cycle. A Finance Director who understands this will build it into the compliance calendar as a standalone milestone, not discover it has been missed during the year-end process.

HMRC interaction. If HMRC opens a compliance check on the R&D claim, the company’s Finance Director is the primary point of contact. An FD who has been through this before will understand what HMRC is probing for, what documentation to provide and how to respond without unnecessarily broadening the scope of the enquiry.

Overseas cost analysis. Companies that use offshore development teams need a careful analysis of which costs can still be claimed under the overseas necessity test. An FD will review each offshore engagement against the test, rather than either claiming everything as before or abandoning the claim for those costs without proper evaluation.

When to use an external R&D specialist alongside your FD

External R&D specialists — boutiques like GrantTree, ForrestBrown, and Myriad Associates — provide genuine value in complex technical eligibility assessments, particularly in sectors with unusual qualifying activity profiles. The right model is FD-led with specialist support where needed: the Finance Director owns the claim, the process and the HMRC relationship, and calls on specialist technical input for the project descriptions where the science is complex.

What no longer works is the model where the external specialist handles the entire claim with minimal internal involvement. That approach does not survive the AIF and notification form requirements, and it creates significant risk if HMRC opens an enquiry.

HMRC Compliance Activity — What Triggers an Enquiry and How to Avoid One

HMRC has significantly increased its R&D compliance activity since 2022. A dedicated R&D compliance team now reviews claims with a focus on inflated cost figures, generic technical narratives and the use of claim submission services that HMRC considers low-quality. Understanding what triggers scrutiny — and how an experienced FD reduces that risk — is a practical consideration for any company making significant claims.

Common triggers for an R&D compliance enquiry

• Generic AIF narratives — Descriptions that describe the business generally rather than specific projects and specific technical uncertainties. HMRC’s compliance teams have become skilled at identifying templated content that does not reflect genuine assessment of the activities.
• First-time or unusually large claims — A company claiming for the first time, or a claim significantly larger than in prior years, is more likely to be selected for review.
• High overseas cost ratios — Claims that include significant overseas subcontractor or EPW costs post-April 2024, particularly where the geographic necessity test has not been properly documented.
• Use of certain R&D boutiques — HMRC has publicly stated that claims prepared by certain high-volume, low-quality submission services are being reviewed more actively. The quality of the agent handling the claim has a direct bearing on the risk profile.
• Claims in excluded sectors — Companies in sectors HMRC considers higher-risk for ineligible claims — certain financial services activities, routine software development, admin process improvement — face greater scrutiny.

What an HMRC R&D enquiry looks like

HMRC can open a compliance check (commonly called an enquiry) within 12 months of the filing of the company tax return. For claims processed as repayments, the review may happen before the repayment is made. HMRC will typically request detailed project-level information, timesheets or time allocation records, technical documentation and cost breakdowns. The process can take months and, if HMRC disallows costs, will result in a tax assessment plus interest and potentially penalties.

An experienced Finance Director will maintain the underlying records throughout the year — not reconstruct them when HMRC asks. That preparation is the difference between an enquiry that closes quickly with full relief confirmed and one that results in disallowed costs and reputational damage with HMRC.

R&D Tax Relief and Other Funding Sources — How They Interact

R&D tax relief does not operate in isolation from other funding sources, and the interactions require careful management. Several common situations can affect eligibility or the rate of relief available:

Innovate UK grants

Companies that receive Innovate UK grants for a specific project cannot claim the enhanced merged scheme rate on the costs funded by the grant. Costs funded by a notified state aid must be excluded from the claim entirely or ring-fenced to a separate RDEC-like calculation. A Finance Director will identify which costs in each project are grant-funded and ensure they are properly segregated in the claim.

EIS and SEIS investment

Receiving EIS or SEIS investment does not directly affect R&D tax relief eligibility. However, companies in the early stages of building a track record of R&D activity may find that their R&D claim — and the cash it generates — is a material factor in their investor story and financial projections. Coordinating the R&D claim timeline with fundraising activity is something an FD with experience of both will manage proactively. See our guide to EIS and SEIS fundraising for more on this.

Patent Box

Companies with qualifying patents can benefit from a reduced 10% corporation tax rate on profits attributable to those patents through the Patent Box regime. R&D expenditure that generates a qualifying patent can therefore attract both R&D relief on the input costs and Patent Box on the resulting profits. This interaction is complex and benefits from FD oversight alongside specialist IP and tax advice.

How FD Capital Places R&D-Experienced Finance Directors and CFOs

The post-2024 R&D landscape requires a Finance Director who understands the claim process well enough to own it internally — not one who delegates it entirely to external specialists and reviews a summary at year-end. The notification form, the additional information form and the increased HMRC scrutiny all demand active FD involvement throughout the year, not just at filing time.

FD Capital has placed Finance Directors and CFOs with technology companies, SaaS businesses, life sciences firms, engineering businesses and deep tech startups across the UK. Many of our candidates have directly managed R&D claims — built the cost-capture processes, prepared the AIF narratives, submitted notification forms, and managed HMRC compliance checks through to resolution.

We place across all engagement models. Fractional Finance Directors who can build the R&D claim infrastructure for a business that does not yet need a full-time FD. Interim CFOs who can step in for a business in the middle of an HMRC enquiry or a year where the claim is unusually complex. Permanent Finance Directors for companies scaling to the point where R&D claim management is a year-round internal function.

Our sector coverage includes the areas where R&D claims are most complex and most valuable: technology, SaaS, fintech, and businesses backed by private equity where the above-the-line EBITDA treatment of the merged scheme credit is particularly relevant to valuation discussions.

R&D Tax Relief Support: From Claim Preparation to HMRC Enquiry Management

Whether you are making your first R&D claim, reviewing a prior year’s process in light of the 2024 rule changes, or dealing with an HMRC compliance check, FD Capital can place a Finance Director or CFO with the specific experience your situation requires. We will work with you to identify the right engagement model — fractional, interim or permanent — and introduce candidates who have done this before, in your sector, at your stage of growth.

Further Reading and Authoritative Sources

For HMRC’s primary guidance on R&D relief under the merged scheme, see Check if you can claim R&D tax relief — GOV.UK. The overview of the reformed merged scheme covers the April 2024 changes in detail. For the DSIT definition of qualifying R&D activities, see the Guidelines on the meaning of research and development for tax purposes.

The British Business Bank’s guide to R&D tax relief qualification provides a useful plain-English overview of eligibility. For sector-specific technical eligibility guidance, the Corporate Intangibles Research and Development Manual (CIRD) is the authoritative HMRC technical reference.

Related Guides: Finance for UK Growth Companies

Part of FD Capital’s series of practical finance guides for growing businesses: EIS and SEIS Fundraising: The CFO’s Complete Guide | EMI Share Option Schemes: A Setup and Management Guide | EBITDA: Meaning, Calculation and Exit Valuation | Management Accounts: A Complete Guide for UK Businesses | Cash Flow Forecasting: A Complete Guide for UK Businesses

Hire an FD or CFO Who Has Managed R&D Tax Claims

Companies looking for R&D tax relief support may also require: Finance Director Recruitment | Fractional Finance Director Recruitment | Interim CFO Recruitment | Fractional CFO Recruitment | Finance Directors for Startups | EIS and SEIS Fundraising: The CFO’s Complete Guide | EMI Share Option Schemes: A Setup and Management Guide | EBITDA: Meaning, Calculation and Exit Valuation | Management Accounts: A Complete Guide for UK Businesses