What is R&D tax relief?
Overview 📘
R&D tax relief is a Corporation Tax (CT) incentive designed to reward UK companies that invest in innovation, experimentation, and problem-solving in the fields of science and technology.
It allows companies to reduce their tax bill or, in some cases, receive a cash refund for qualifying R&D expenditure, even if the project was not successful.
To qualify, your company must be working to resolve scientific or technological uncertainties, which includes developing or improving products, processes, systems, or services that push the boundaries of what’s currently possible.
The amount of relief you can claim depends on your company’s size, financial position, and accounting period.
💡 The R&D Relief Landscape
R&D relief has undergone significant reform, and the available schemes depend on the accounting period start date of your claim.
- Before 1 April 2024: Two main schemes, the SME R&D Scheme and the RDEC Scheme for larger companies.
- On or after 1 April 2024: The schemes have been merged into a new system, with a separate enhanced route for R&D-intensive loss-making companies.
🔍 R&D Schemes for Accounting Periods Starting Before 1 April 2024
| SME Scheme | Large Company (RDEC) | |
|---|---|---|
| Size | Fewer than 500 staff, and either turnover ≤ £100m or gross assets ≤ £86m. Most companies fall into this category. | 500 staff or more, and either turnover > €100m or gross assets > €86m. |
| Scheme Name | R&D Tax Relief for SMEs | Research and Development Expenditure Credit (“RDEC”) |
| Relief Type | Enhanced tax deduction | Taxable expenditure credit |
| Benefit | 186% deduction on eligible costs. Loss-making companies can surrender losses for a cash credit worth up to 18.6% of qualifying spend. 📘 Example: Spend £50,000 → reclaim up to £9,300. Extra benefit may apply if you qualify as R&D intensive. |
A taxable credit worth 20% of qualifying costs, creating a net benefit of 16.2% after tax. 📘 Example: Spend £50,000 → benefit worth £8,100. |
| R&D Intensive Rate | Applies to loss-making SMEs where R&D costs ≥ 40% of total expenditure (for periods from 1 April 2023 until before 1 April 2024). | Not applicable. |
🔧 R&D Schemes for Accounting Periods Starting On or After 1 April 2024
Following reforms, HMRC simplified the system into two schemes:
- The Merged Scheme (for most profit-making companies)
- The Enhanced R&D Intensive Support (ERIS) scheme for smaller, loss-making businesses
| Merged Scheme | Enhanced R&D Intensive Support (ERIS) | |
|---|---|---|
| Who Can Apply | All companies, regardless of size | Loss-making companies with: • < 500 staff and either turnover ≤ €100m or gross assets ≤ €86m • At least 30% of total costs relating to R&D |
| Relief Type | Taxable expenditure credit | Enhanced tax deduction |
| Benefit | 20% taxable credit on qualifying costs, creating a net benefit of 16.2%. 📘 Example: Spend £50,000 → benefit of £8,100 (cash or offset). |
Additional tax deduction of 86% on qualifying R&D costs. Losses can be surrendered for cash at 14.5%. 📘 Example: Spend £50,000 → cash refund of up to £13,485. |
| Purpose | Streamlines R&D support and unifies SME and RDEC systems | Maintains enhanced relief for R&D-intensive small businesses |
💷 Claim Value Comparison
| Scenario | Spend (£50,000) | Approx. Benefit |
|---|---|---|
| SME Scheme (Pre-April 2024) | £9,300 | 18.6% benefit |
| RDEC Scheme (Pre-April 2024) | £8,100 | 16.2% benefit |
| Merged Scheme (Post-April 2024) | £8,100 | 16.2% benefit |
| ERIS (Post-April 2024) | £13,485 | 26.97% benefit |
💡 Note: Actual claim values vary based on profit/loss positions, R&D intensity, and any subcontracting rules that apply.
🧩 What Counts as R&D?
To qualify, your project must:
- Aim to make an advance in science or technology, and
- Involve technical uncertainty that cannot be readily solved by competent professionals.
✅ Summary
- R&D tax relief rewards UK companies working on scientific or technological innovation.
- The scheme you claim under depends on your size and accounting period.
- From 1 April 2024, HMRC merged the SME and RDEC schemes into a single Merged Scheme, with ERIS providing extra support for smaller R&D-intensive businesses.
- Even unsuccessful projects can qualify, what matters is the attempt to solve a genuine technical uncertainty.