Innovation needs funding as much as it needs ideas. If your team is improving products, building new software, tackling technical uncertainty or enhancing processes, the UK’s reformed R&D reliefs can reduce your Corporation Tax bill or provide a payable credit. In this guide we explain how to leverage R&D tax credits in the 2025/26 tax year, what counts as qualifying activity, and the practical steps that help claims stand up to HMRC review. We keep it simple and focused on value for you – so you can keep momentum without disrupting delivery.

The regime changed in April 2024. Most companies now claim under the merged R&D expenditure credit (RDEC-style) scheme, which provides a 20% taxable credit for qualifying R&D costs. Loss-making SMEs that meet the “R&D-intensive” threshold may access enhanced support via ERIS, a separate, more generous route in specific circumstances. Getting the route right matters because it affects cashflow, accounting presentation and the timing of any benefit. We also see stronger HMRC compliance checks than before, so clear project evidence and accurate cost treatment are essential.

Businesses continue to invest: UK business R&D spend reached £50.0 billion in 2023, up 2.9% on 2022 (ONS, 2024). That growth underlines a simple truth – if you’re pushing the boundaries in your field, there’s a good chance some of your work qualifies. Our role is to help you identify those projects, align your records with HMRC’s definition of R&D, and leverage R&D tax credits efficiently and with confidence.

What actually qualifies as R&D?

HMRC follows the BEIS definition: a project must aim to resolve scientific or technological uncertainty, not just routine work. Typical examples include:

• New or improved products: Achieving an appreciable Improvement in performance, reliability or scalability.
• Process innovation: Developing a New method that materially enhances throughput, cost, or quality.
• Software and data: Building New algorithms, data pipelines or architectures to overcome technical limits.
• Prototype and testing: Running Experiments to evaluate feasibility where outcomes weren’t known in advance.

Commercial risk alone does not qualify. The case is stronger when your technical team can show you tried various approaches, recorded failures, and advanced knowledge in your domain.

When to leverage R&D tax credits under the merged scheme

For accounting periods beginning on or after 1 April 2024, most companies use the merged scheme. It works as an above-the-line expenditure credit in your profit and loss account. The rate is 20% and the credit is taxable as trading income – so build that into forecasts and board packs (HMRC, 2025). For example, £250,000 of qualifying spend generates a £50,000 credit that reduces your tax or, if surrenderable, may be paid subject to set-offs and caps.

Key points to manage:

• Qualifying costs: Include staff costs, externally provided workers, software, consumables, some subcontracted R&D and cloud/data costs.
• Project-based evidence: Keep contemporaneous notes of uncertainty, hypotheses, tests, and outcomes.
• PAYE/NIC cap: Understand the cap mechanics that can limit payable amounts; exemptions may apply depending on your profile.

ERIS: The intensive route for loss-making SMEs

If you are a loss-making SME and your qualifying R&D expenditure is at least 30% of total relevant expenditure for the period, you may meet the “R&D-intensive” condition and claim under ERIS instead of the merged scheme. ERIS gives an additional 86% deduction and a payable credit on surrenderable losses at 14.5%. HMRC’s own example expresses the benefit as up to £27 for every £100 of qualifying spend for eligible loss-makers (HMRC, 2025). Plan early – choosing ERIS or the merged scheme is strategic and can change your cash position across the year.

The admin you must get right

Three steps regularly trip teams up. Get these right and you reduce stress later.

• Claim notification: First-time claim or a gap of more than three years since your last claim: Tell HMRC within the claim-notification window, or the claim will be invalid.
• Additional Information Form (AIF): Submit the AIF before or on the same day as your CT600. If the tax return lands first, HMRC will remove the R&D claim. The AIF covers company details, projects, costs and – where relevant – R&D intensity data.
• Project selection: Focus on projects with genuine uncertainty and measurable technical advances. Better to claim less and defend it well than overreach and face delays.

You can read HMRC’s AIF rules here.

Getting the numbers right

Qualifying expenditure needs careful review line by line:

• Staff costs: Include gross pay, Class 1 NIC, pension and certain reimbursed expenses; apportion by time on qualifying activities.
• Externally provided workers: Track supplier arrangements and PAYE references to support eligibility and caps.
• Subcontractors: Confirm whether subcontracted work qualifies and which scheme rules apply.
• Software, cloud and data: Capture licences and cloud computing that directly support R&D.
• Consumables and prototypes: Record materials consumed in trials or scrapped prototypes.

Overseas restrictions now limit some costs, with special provisions for Northern Ireland under ERIS. If overseas inputs are significant, assess early to avoid surprises (HMRC, 2025).

Record-keeping that stands up to review

We recommend a lightweight, repeatable framework:

• Technical logs: Use sprint notes, tickets and lab records that state uncertainties, experiments and outcomes.
• Cost mapping: Reconcile timesheets and payroll to project codes; keep clear bridges to the CT computation.
• Governance: Hold quarterly reviews with a senior technical lead and finance to validate scope, progress and claims.
• Supplier evidence: Maintain statements of work and deliverables that reference the technical problem you were trying to solve.

Do this as you go – not at year-end – and you’ll leverage R&D tax credits with less disruption and stronger assurance.

How we help

We combine tax and technical expertise to make claims efficient, accurate and defendable. Typical support includes scoping workshops with your engineers, building the project narratives the AIF expects, mapping costs to the right scheme and managing the submission timeline. If you want to benchmark benefit or cash timing, we’ll model merged-scheme versus ERIS outcomes and the impact on cashflow across the year.

Strong R&D governance helps you leverage R&D tax credits repeatedly, not just once. The merged scheme now offers a clear 20% credit, visible in operating results, while ERIS gives intensive support to loss-making SMEs that qualify. Pairing the right route with good records reduces risk and speeds up processing. Our advice is simple: decide early whether you expect to meet the intensity condition, set up your data capture, and map costs to projects monthly. Submit the AIF before or on the same day as the CT600, and keep your narratives focused on the technical uncertainty you faced, the approaches you tested and what changed as a result. If you are planning significant new projects, speak to us before you sign major supplier contracts so we can optimise scope, evidence and claim timing.

If you want practical help to leverage R&D tax credits this year, we’re ready to support you – from eligibility reviews to full-service claim preparation and defence. Get in touch to leverage R&D tax credits with a focused, compliant process that protects your time and cash.