UK R&D Tax Credits: How Much Can You Claim in 2025?
If your business invests in research and development, you could be throwing money away. The UK government offers R&D tax credits that put cash directly back into your company’s pocket – yet most businesses don’t claim what they’re entitled to.
This guide explains everything you need to know about UK R&D tax credits, from eligibility through to maximising your claim value. Whether you’re a small software firm, a manufacturing business, or a loss-making startup, there’s a scheme designed for you.
What Are R&D Tax Credits?
R&D tax credits are a government incentive designed to reward UK companies for investing in innovation. When you spend money on research and development, you can claim relief against your corporation tax bill. In some cases, the government actually pays you cash.
The scheme was introduced in 2000 under Gordon Brown’s Labour government. The idea was simple: encourage private companies to innovate by giving them a tax break. Two years later, a large company scheme followed. Today, the scheme is one of the UK’s most valuable tax reliefs for innovative businesses.
Here’s the core principle: if you’re trying to overcome a scientific or technological challenge – something that wasn’t obvious to a competent professional – you’re likely doing qualifying R&D.
The benefit varies depending on your company size, profitability, and which scheme you claim under. Rates range from 15% to 27% of your qualifying expenditure. For a £100,000 investment, that could mean £15,000 to £27,000 back.
How Much Can You Actually Claim?
The value of your claim depends on three things: your scheme, your company status (profit or loss), and the timing of your spend.
Current R&D Tax Credit Rates (2025)
| Scheme | Company Status | Rate | Real Benefit |
|---|---|---|---|
| SME Scheme (pre-April 2023) | Profit-making | Up to 24.7% | Corp tax saving |
| SME Scheme (from April 2023) | Profit-making | Up to 21.5% | Corp tax saving |
| SME Scheme (loss-making) | Loss-making | 10-14.5% | Cash payment |
| Merged Scheme (from April 2024) | Any company | 15-16.2% | Corp tax relief or cash |
| ERIS (Enhanced R&D Intensive) | Loss-making SME | Up to 27% | Cash payment |
| RDEC (pre-April 2024) | Large company | 10.5-15% | Corp tax relief |
The merged scheme is now the default for claims covering periods starting on or after 1 April 2024. It simplified things by bringing the SME and large company schemes together, though some rules remain complex.
Real Examples
Example 1: Profitable SME in Bristol
A software company develops a new data analytics platform. They invest £120,000 in development (staff costs, software licences, contractor payments). Under the merged scheme, they claim 16.2% relief = £19,440 corporation tax saving.
Example 2: Loss-Making SME in Manchester
A manufacturing firm spends £250,000 on R&D (40% of their total costs). They make a trading loss before relief. They qualify for Enhanced R&D Intensive Support (ERIS) at 27% – that’s £67,500 in cash from HMRC.
Example 3: Large London Fintech Company
A fintech business claims £500,000 in qualifying R&D costs. Under the merged scheme, they get 16.2% benefit = £81,000 corporation tax reduction, plus the credit shows “above the line” on their tax return.
According to HMRC statistics, the average SME claim is around £81,000, and the average large company claim is £291,000.
What Costs Qualify for R&D Tax Relief?
Not every business expense qualifies. HMRC is specific about what you can claim. Broadly, any cost directly related to your qualifying R&D activity is in scope.
Qualifying Costs Include:
Staff Costs – Salaries, employer’s National Insurance, pension contributions, and reimbursed expenses for staff directly working on R&D projects.
Agency Workers & Contractors – Payments to externally provided workers and freelancers working on your R&D activities.
Subcontracted R&D – From April 2024, subcontracted R&D costs became more generous. Even if you outsource development work, you can claim it. However, rules are complex – see below.
Software Licenses – Licenses for software used in your R&D process (development tools, testing software, etc.).
Cloud Computing & Data – Cloud services and data licences used for R&D activities.
Materials & Consumables – Equipment, materials, and utilities (heat, light, power) that are used up or transformed by the R&D process.
Clinical Trial Costs – If applicable, payments to subjects of clinical trials.
What Doesn’t Qualify:
- Website design or development (unless it involves new technology)
- Routine software maintenance or updates
- Activities in arts, humanities, social sciences, or economics
- Work that’s routine for a competent professional
Which Scheme Is Right for Your Business?
The scheme you claim under depends on your company size and status.
SME R&D Scheme
You can claim as an SME if you have fewer than 500 employees and either turnover below €100 million or a balance sheet under €86 million.
If you’re profitable: You get an enhanced deduction. Expenditure before 1 April 2023 qualifies for 186% super-deduction (24.7% benefit). From 1 April 2023, it’s 86% (21.5% benefit).
If you’re loss-making: You can carry back the loss, carry forward, or surrender it for a cash credit at 10% or 14.5%, depending on timing.
Enhanced R&D Intensive Support (ERIS)
This is for loss-making SMEs that are genuinely R&D-focused. You qualify if:
- You’re an SME
- You made a trading loss (before relief is calculated)
- At least 40% of your costs were R&D (for expenditure after 1 April 2023), or 30% (from 1 April 2024)
ERIS offers up to 27% cash relief – the highest rate available. It’s specifically designed to support innovation-led SMEs in difficult trading periods.
Large Company Scheme (RDEC & Merged)
If you’re not an SME, you claim under the R&D Expenditure Credit (RDEC) for periods before 1 April 2024, or the merged scheme from that date.
The rate is 20% of eligible expenditure under the merged scheme, resulting in a real benefit of around 16.2% after corporation tax (at the 25% rate).
The Merged Scheme (From April 2024)
From 1 April 2024, the SME and RDEC schemes merged into one “merged” scheme. The key changes:
- Subcontracted costs are now more generous – you can claim for work you’ve outsourced
- Overseas costs are restricted – costs incurred outside the UK generally don’t qualify, with narrow exceptions
- PAYE cap is more generous: £20,000 plus 300% of relevant PAYE and NI contributions
- Above-the-line treatment – the credit is visible on your tax return
How to Claim R&D Tax Credits: Step-by-Step
Claiming R&D relief isn’t complicated, but it does require organisation and documentation.
Step 1: Assess Your Projects
Identify which of your business activities qualify as R&D. Not everything in a company’s “R&D department” qualifies – you need genuine scientific or technological uncertainty.
Ask: “Were we trying to overcome a challenge that wasn’t obvious to a competent professional?”
If yes, it probably qualifies.
Step 2: Gather Your Costs
Collect all costs related to your qualifying projects. Include:
- Payroll records
- Freelancer invoices
- Software licence purchases
- Utility bills (if apportioned)
- Materials and consumables
Costs must be recorded in your profit and loss account. You’ll need to match them to specific projects.
Step 3: Notify HMRC (If Required)
For first-time claimants, or if you haven’t claimed for 3+ years, you need to notify HMRC within six months of your accounting period end using the claim notification form (available on HMRC’s website).
Step 4: Prepare Your Documentation
You’ll need:
- A technical report describing your R&D projects, the challenges you faced, and how you overcame them
- A costing report breaking down your expenditure by project
- An Additional Information Form (AIF) – a summary for HMRC
The technical report is the most important. It should explain the scientific or technological uncertainty in language a non-specialist can understand.
Step 5: Submit Your Claim
Include your R&D claim in your Company Tax Return (CT600). Reference the technical and costing reports.
Step 6: Await HMRC’s Response
If everything’s in order, you’ll receive your relief within the normal Corporation Tax processing timeline (usually 4-12 months, though this varies).
Common R&D Tax Misconceptions
Myth 1: “Only Pure Scientists Can Claim”
Reality: Software developers, engineers, manufacturers, and even business process innovators claim successfully. Any industry can claim if you’re trying to overcome a technical challenge.
Myth 2: “My Project Must Be Successful”
Reality: Failed projects absolutely qualify. HMRC wants to encourage innovation risk-taking. A project that didn’t work still overcame genuine uncertainty.
Myth 3: “We Can Only Claim for In-House Work”
Reality: From April 2024, subcontracted work is easier to claim. You can claim for freelancers and external contractors, though rules apply. Subcontracted costs from unconnected parties are included at 100%; subcontracted costs from connected parties are capped at 30%.
Myth 4: “Only Startups Need R&D Relief”
Reality: Large corporates, scale-ups, and established firms all claim successfully. In fact, large company average claims (£291,000) exceed SME claims (£81,000).
Myth 5: “HMRC Will Definitely Challenge My Claim”
Reality: HMRC scrutiny has increased, but most claims are accepted without enquiry. A well-documented claim with a clear technical report minimises risk significantly.
Recent Changes to UK R&D Tax: What You Need to Know
The Merged Scheme (April 2024)
This was the biggest change in years. The SME and large company schemes merged into one, with these implications:
- Subcontracted R&D is easier – but rules are complex. If you’ve outsourced development, get specialist advice.
- Overseas costs are restricted – this caught many businesses off-guard. If you have R&D teams overseas or offshore development, this impacts your claim. There are narrow exceptions, but they’re complex.
- The PAYE cap changed – now more generous for most businesses
- Above-the-line credit – large companies see the benefit on their tax return more clearly
ERIS Scope Expanded
From April 2024, loss-making SMEs qualifying for ERIS can no longer claim for subsidised expenditure. This affects grant-funded R&D projects.
Compliance Scrutiny
HMRC compliance activity has increased. The message is clear: claims must be well-documented. Working with a specialist reduces audit risk significantly.
How to Maximise Your R&D Tax Credit
Pro Tip 1: Be Comprehensive
Many businesses claim for obvious R&D – core development work. But there’s often hidden qualifying activity. Quality assurance, testing, debugging, and even some training can qualify if it’s directly related to your R&D projects.
Pro Tip 2: Document Your Uncertainty
HMRC wants to see that you faced genuine technical challenges. Document the decisions you made, the solutions you tried, and why things weren’t straightforward. This isn’t just bureaucracy – it protects your claim.
Pro Tip 3: Review Your Projects Carefully
Get your project boundaries right. A project should encompass all activities needed to resolve the uncertainty, but not commercial activities unrelated to the innovation.
Pro Tip 4: Consider the Merged Scheme Impact on Subcontracting
If you’ve outsourced R&D work, the merged scheme might increase your claim. But rules around connected parties and subsidy are complex. Review your subcontracting arrangements with a specialist.
Pro Tip 5: Watch Your Overseas Costs
If you have R&D teams abroad or outsource internationally, the restrictions are likely to impact you. The exceptions (e.g., costs for overseas customers) are narrowly drawn. Model the impact on your claim before the accounting period ends if possible.
Risks to Avoid
Avoid claiming for obviously routine work. HMRC will reject claims that don’t overcome genuine uncertainty.
Avoid vague documentation. If your technical report reads like a marketing brochure rather than a technical account, it won’t pass scrutiny.
Avoid mixing up projects. Ensure every cost is correctly attributed. Misattribution is a common reason for claim adjustments.
Avoid ignoring the PAYE cap. Loss-making companies can claim cash back, but it’s capped. Understand your cap to avoid nasty surprises.
Frequently Asked Questions
Q: Can sole traders and partnerships claim R&D relief?
A: Only limited companies subject to Corporation Tax can claim. Sole traders and partnerships can’t use this scheme, though they may have access to other incentives.
Q: How far back can I claim?
A: Generally, up to six years. However, claiming for very old periods attracts more scrutiny. Most businesses focus on the current and previous three years.
Q: What if I claim incorrectly – will HMRC penalise me?
A: If the error is honest and your documentation is reasonable, penalties are often waived. If the error is deliberate or documentation is poor, penalties can apply (0-100% depending on severity).
Q: Can I claim for R&D work done overseas?
A: Only in specific circumstances under the merged scheme. Generally, costs incurred abroad don’t qualify unless narrow exceptions apply. Get specialist advice if this applies to you.
Q: What’s scientific and technological uncertainty?
A: It’s a challenge that couldn’t be easily resolved by a competent professional in the field without significant effort and experimentation. See our detailed guide on scientific and technological uncertainty for more.
Q: Do I need a technical report to claim?
A: HMRC expects one. For three or fewer projects, you must cover all of them. For four or more, you must cover at least three representing 50% of your costs. A well-written report is your best defence against challenge.
Q: What if my R&D project failed?
A: It still qualifies. HMRC rewards the attempt to innovate, not just success.
Q: Can I use a general accountant or do I need a specialist?
A: A specialist significantly reduces risk. They understand HMRC guidance, know which costs are defensible, and can structure your claim to withstand scrutiny. For small claims, a general accountant might suffice. For complex situations (merged scheme impact, ERIS eligibility, overseas costs), specialist advice pays for itself.
Q: How long does HMRC take to process a claim?
A: Typically 4-12 months after you submit your Corporation Tax return. If HMRC raises enquiries, it can take longer.
Q: Are there industries that can’t claim?
A: Yes. HMRC rarely accepts claims from care homes, childcare providers, personal trainers, wholesalers, retailers, or pubs and restaurants. But genuinely innovative activity in these sectors might still qualify – it’s fact-specific.
Is R&D Relief Still Worth Claiming After Recent Changes?
The short answer: absolutely. Even with reduced SME rates and increased compliance requirements, R&D relief remains valuable.
A loss-making SME qualifying for ERIS can claim 27% – that’s enormous. A profitable SME still gets 16-21% relief. Large companies get 16.2% under the merged scheme, which is better than general Corporation Tax relief.
Yes, HMRC compliance activity has increased. Yes, the merged scheme rules are complex. But with proper documentation and specialist guidance, your claim is defensible.
Innovation is risky. R&D relief acknowledges that risk and rewards you for taking it. If you’re investing in science and technology, claim what you’re entitled to.
Get Your R&D Claim Right From the Start
Recent changes to the R&D regimes have created significant complexity, especially around subcontracted costs and overseas R&D. Getting professional guidance upfront minimises risk and maximises your benefit.
Ready to see what your R&D investment could be worth? Our free R&D calculator estimates your potential saving in under 2 minutes – no email required, no obligation.
Or, if you’d prefer to discuss your specific situation first, book a free 20-minute consultation with one of our R&D specialists. We’ll review your projects, identify what qualifies, and show you exactly where you stand.
Related Resources
For deeper dives into specific topics, check out these guides:
- HMRC’s official R&D guidance outlines qualifying activities and documentation requirements
- Understanding qualifying R&D expenditure and cost allocation best practices
- Scientific and technological uncertainty – how HMRC defines it and why it matters
- How R&D tax credit works step-by-step, from project identification to HMRC submission
- R&D tax relief accounting treatment – financial reporting and P&L presentation
- Loss-making companies and ERIS relief – maximising cash payments when trading at a loss
- R&D tax relief for AI and machine learning – emerging best practices and qualifying uncertainty
Learn more about uk r&d tax credits