R&D tax relief now runs through a single merged scheme for accounting periods beginning on or after 1 April 2024: a 20% expenditure credit, paid above the line, worth a net 15p to 16.2p per pound of qualifying spend depending on your tax position. Loss-making SMEs that spend at least 30% of their total costs on R&D get a richer deal — Enhanced R&D Intensive Support, with a payable credit worth up to 27p per pound. The old SME scheme is gone for new periods.
The relief is still generous. What has changed beyond recognition is the compliance environment: mandatory notification windows, a detailed information form for every claim, roughly one claim in six checked, and new rules on who can claim for subcontracted work. Companies treating R&D claims the way they did in 2021 are the ones now writing to HMRC's disclosure facility.
The merged scheme in numbers
The credit is 20% of qualifying expenditure and is itself taxable — it lands in the accounts as income, above the line, which is why finance directors like it: it shows up in operating profit rather than as a tax-line mystery. After tax, the net benefit is 15% of qualifying spend for a company paying the 25% main rate, and 16.2% for loss-makers, whose credit is netted at the 19% small profits rate. A company spending £400,000 on qualifying R&D sees £60,000–£65,000 of real benefit.
Loss-making, R&D-intensive SMEs can instead use ERIS: an 86% extra deduction on qualifying spend plus the ability to surrender the loss for a 14.5% payable cash credit. The intensity test is 30% — qualifying R&D must be at least 30% of the company's total expenditure, counted across connected companies — with a grace period protecting companies that dip below it for a year. For a deep-tech startup burning cash on development, ERIS is meaningfully better than the merged credit; checking which side of the 30% line you fall is now part of year-end planning. The rules for both schemes are on gov.uk.
What counts as R&D — and what counts as cost
The definition has not moved: a project seeking an advance in science or technology by resolving uncertainty that a competent professional could not readily resolve. Routine development, cosmetic iteration and commercial novelty without technical uncertainty do not qualify — and overstating this boundary is precisely what HMRC's compliance teams spend their days unpicking.
Qualifying costs cover staff (salaries, employer NIC, pension), externally provided workers and unconnected subcontractors at 65%, consumables, software licences, data and cloud computing costs, and payments to clinical trial volunteers. Capital spend sits outside the scheme (R&D capital allowances exist separately). Payable credits are capped by reference to PAYE: £20,000 plus 300% of the company's relevant PAYE and NIC — a cap aimed at claim factories with no UK payroll, which genuine employers rarely hit and which carries its own exemptions for companies creating IP with their own staff.
Who claims when R&D is contracted out
The merged scheme rewrote the subcontracting logic. The default is that the customer claims — the party that intended or contemplated the R&D when commissioning the work; the contractor doing the hands-on work claims where the customer did not have R&D in contemplation (the client who ordered a product, not a research project). A separate rule covers customers who could never claim UK relief at all — an overseas business with no UK tax presence, for instance — where the UK contractor can claim on its own account. The decision turns on the facts of who contemplated the R&D, and contract wording cannot override them — but recording the parties' intentions in the contract, before the work, has become standard hygiene on development engagements precisely because pre-2024 contracts evidence nothing either way.
Overseas spend is now largely shut out: subcontractor and externally-provided-worker costs must generally relate to UK activity, with a narrow exception where the R&D genuinely cannot be done here — regulatory constraints, geography, patient populations — and cost or workforce availability are explicitly not acceptable reasons. Offshore development teams that anchored 2022-era claims mostly no longer qualify.
The administrative gates: miss them and the claim dies
- Claim notification: first-time claimants — and, broadly, those with no claim in the three years to the notification deadline — must notify HMRC of the intention to claim within six months of the end of the period of account. The lookback has exceptions (certain recent claims made in time count), but for anyone outside them a missed window bars the claim outright — an administrative guillotine with no profit-based mercy;
- Additional Information Form: every claim must be accompanied by the AIF — project descriptions, cost breakdowns by category, the agent who advised, and a named senior contact taking responsibility — submitted before the CT600 carrying the claim (filing both the same day: AIF first). Claims without it are removed from returns automatically.
The named-contact requirement deserves a pause: a senior person inside the company takes responsibility for the claim. If your R&D adviser drafts project descriptions the engineering team has never read, that responsibility is being lent to text nobody stands behind — exactly the pattern HMRC's checks are designed to catch.
The compliance climate, honestly stated
By HMRC's own published figures, roughly one claim in six was subject to a compliance check in recent years, and its estimate of error and fraud has fallen from a peak of 17.6% of relief (2021/22) to under 6% in the latest annual report — progress achieved by making claims harder for everyone. Enquiries are slow, technical and increasingly conducted by correspondence with specialist units. A defensible claim file — contemporaneous project records, time allocations, the competent professional's reasoning about uncertainty — turns an enquiry into an exchange of letters. Its absence turns one into a negotiation about how much to repay.
If a past claim now looks overstated, HMRC runs a voluntary disclosure facility for R&D overclaims outside the normal amendment window. Using it before HMRC opens a check is materially cheaper in penalties, and, for the avoidance of doubt, it is not a route for deliberate overclaims — those need proper advice first.
Doing it well from here
The scheme still rewards genuine innovation handsomely; it just no longer rewards optimism. The claims that sail through share a shape: notification diarised at period end, projects assessed against the statutory definition by someone technical, costs built from payroll and ledger data rather than percentages, the AIF drafted with the engineers, and ERIS eligibility checked annually while the intensity ratio can still be managed.
Acumon prepares and defends R&D claims across both schemes — see our R&D tax credits service, and the Patent Box page for the 10% corporation tax rate that often follows successful R&D. If your last claim was prepared by a volume provider and you would like it sense-checked before HMRC does, that review is quick and occasionally very valuable.