How R&D Tax Relief Works in the UK: A Complete Guide to R&D Tax Credits

April 21, 2026

R&D tax relief is a UK government incentive that allows companies to recover part of the cost of research and development work. A company that undertakes qualifying R&D activities can reduce its corporation tax liability or receive a payable tax credit based on qualifying R&D expenditure.

R&D tax relief supports companies developing new technology, improving products or processes, or solving scientific or technological challenges. Many industries use the incentive, including software development, engineering, manufacturing, life sciences, artificial intelligence, fintech, and advanced materials.

The UK tax system applies different R&D tax relief schemes depending on the company accounting period, company size, group structure, and project circumstances. The scheme that applies determines how qualifying R&D expenditure is treated and how the financial benefit is calculated.

R&D tax relief works through a defined set of rules that determine whether development work qualifies, which costs can be included in a claim, and how the financial benefit is calculated. Companies preparing a claim therefore need to understand how HMRC defines R&D, which expenditure categories qualify, how different schemes apply, and what documentation supports the claim.

Who Qualifies for R&D Tax Relief?

A company can claim R&D tax relief when it carries out qualifying research and development activities, is carrying out a trade and is subject to UK corporation tax. Eligibility depends on the nature of the development work rather than the industry in which the company operates.

Three conditions determine whether a company’s activities may qualify.

The company must be subject to UK Corporation Tax.
R&D tax relief forms part of the UK corporation tax system. Companies that submit corporation tax returns can include qualifying R&D expenditure in a claim.
The project must aim to achieve an advance in science or technology.
The development work must attempt to improve scientific or technological capability beyond the knowledge or capability currently available within the company.
The project must involve scientific or technological uncertainty.
Scientific or technological uncertainty exists when a competent professional in the relevant field cannot readily determine how to achieve the required outcome at the outset of the project. Companies usually resolve this uncertainty through experimentation, testing, modelling, prototyping, or iterative development.

Many industries claim R&D tax relief because their work involves technical development. Common sectors include software development, engineering and manufacturing, life sciences and biotechnology, product development and advanced materials, and emerging fields such as fintech and artificial intelligence.

For accounting periods beginning on or after 1 April 2024 there are two schemes that are available to companies.

What Counts as R&D for Tax Relief?

HMRC determines whether development work qualifies for R&D tax relief using the BEIS Guidelines on the Meaning of Research and Development for Tax Purposes. These rules focus on projects that attempt to achieve a scientific or technological advance by resolving technical uncertainty through structured development work.

Your project is likely to qualify when three conditions are present.

Scientific or Technological Advancement

Your project must aim to achieve an advance in science or technology. This means the development work attempts to improve technological capability beyond what is already known or readily deducible by a competent professional in the field.

The advance does not need to be new worldwide. However, the project must push beyond existing knowledge or capability within the relevant scientific or technological field. Work that simply applies known methods or existing technology usually does not qualify.

Technical Uncertainty

Your project must involve scientific or technological uncertainty.

Scientific or Technological uncertainty exists when a competent professional in the relevant field cannot readily determine how to achieve the required technological outcome at least at the outset of the project. Companies usually resolve this uncertainty through experimentation, testing, modelling, prototyping, or iterative development.

Demonstrating this uncertainty is one of the most important elements of a successful R&D tax relief claim.

A project can still qualify even if the technical advance is not ultimately achieved. What matters is that the development work attempted to resolve a genuine scientific or technological uncertainty.

Systematic Experimentation

Qualifying R&D work involves structured experimentation to resolve the technical problem.

Your development team must investigate possible solutions through activities such as modelling, prototyping, simulation, or iterative testing. These activities help determine whether a proposed design, algorithm, material, or process can achieve the required technical result.

Routine testing, quality control, or standard product updates do not normally qualify because they do not attempt to resolve technical uncertainty.

Examples of Activities That Often Qualify as R&D

Developing new software algorithms or system architectures
A software company may attempt to design an algorithm capable of processing large datasets more efficiently. The technical uncertainty lies in whether the required performance improvement can be achieved using a workable architecture.
Improving manufacturing processes
An engineering company may attempt to redesign a production process to improve efficiency or product performance. Engineers test different materials, tooling configurations, or process parameters to determine whether the required improvement is technically achievable.
Designing advanced hardware or electronic components
A technology company may develop a new circuit architecture to improve power efficiency or processing capability. Engineers prototype and test multiple design iterations to resolve uncertainty around performance and stability.
Solving performance limitations in existing products
A product development team may investigate overheating or durability problems in a complex device. Engineers test alternative designs, materials, or cooling systems to determine whether the limitation can be resolved.

Companies that undertake development work involving this type of technical uncertainty often qualify for R&D tax relief.

If you are unsure whether your projects meet the R&D criteria, our R&D tax specialist can review the development work and determine whether the activities qualify.

Which Costs Qualify for R&D Tax Relief?

When preparing an R&D tax claim, your company must identify qualifying R&D expenditure. HMRC allows several categories of development costs to be included in a claim when those costs arise directly from work aimed at resolving scientific or technological uncertainty.

The costs that can be included in the claim largely depend on:

the R&D activity qualifying for relief,
costs being allowable and related to the qualifying R&D activity
costs included falling within the start and end of your project

R&D begins when work to resolve the scientific or technological uncertainty is initiated and ends when that uncertainty is resolved.

The type of R&D project usually determines which costs appear in the claim. Software companies often incur most R&D expenditure through developer costs or cloud infrastructure. Manufacturing businesses typically include prototype materials, engineering time, and testing costs. Because development work differs across industries, companies should review their projects carefully to determine which expenses qualify as this often varies.

It is worth remembering that a company must have already paid the cost or will have by the time the claim has been submitted to HMRC. Costs that have not been paid before the claim is submitted will not be eligible.

Most R&D claims include a combination of the following cost categories.

Staff Costs

Staff costs often represent the largest share of an R&D claim. Your company can include Salaries, Bonuses, Employers National Insurance contributions, and Employers pension contributions for employees or directors directly involved in R&D activities such as engineering design, experimental development, or technical testing.

You are also able to claim a proportion of staff cost for individuals who carry out work to support the R&D activity, but do not directly contribute towards the resolution. These are known as ‘qualifying indirect activities’.

Payments to subjects of clinical trials

Companies making payments to humans participating in clinical trials may qualify. A clinical trial relates to the development of healthcare treatment or products.

Third Party R&D

Companies sometimes outsource development tasks to external parties or research organisations.

Subcontractors can at times be involved in the resolution of scientific or technological uncertainty and are typically engaged on a direct basis with other technical experts. In certain situations, this subcontracted R&D cost can be included in a claim.

Subcontractors differ from Externally Provided Workers, who typically work under the company’s supervision, control and direction as an extension to the internal R&D team and typically involve an employment agency or ‘staff provider’.

The test for Subcontractor vs EPW must be applied to resource individually as it is not a ‘one size fits all’ approach.

Software and Cloud Computing Costs

Technical software licences, data licenses, developer tools, and cloud infrastructure used directly in R&D activities may qualify as R&D expenditure. These costs are common in software development, artificial intelligence projects, and other data-intensive research work.

Consumables and Prototype Materials

Materials and inputs used during experimentation or prototype development can also qualify. Examples include raw materials, laboratory supplies, precious metals, or prototype parts used during product development and engineering testing.

You can also claim a proportion of water, fuel and power costs associated with facilitating R&D to take place.

There are specific requirements for the inclusion of consumables within an R&D claim and will typically require additional scrutiny. If you are unsure which costs qualify, our R&D tax specialist can review your development work and help identify eligible expenditure.

How Much Can You Claim Through R&D Tax Relief?

The value of an R&D tax relief claim depends on three elements: the amount of qualifying R&D expenditure, the scheme that applies to your company, and your company’s tax position. These factors determine how development costs are converted into a tax benefit.

After confirming whether a project qualifies for relief or not, your company first identifies the qualifying R&D expenditure connected to its development projects.

This qualifying R&D expenditure either then receives an additional deduction or a credit rate set out under the scheme being claimed for.

The final value depends on whether your company is profitable or loss-making, because the relief can reduce corporation tax or be received as a payable credit.

Profitable companies usually receive the benefit through a reduction in corporation tax liability. Loss-making companies may be able to surrender losses linked to R&D expenditure in exchange for a payable credit.

This option is particularly useful for startups and early-stage technology companies that invest heavily in development but have not yet generated taxable profits.

R&D Tax Relief Schemes and Rates in the UK

The scheme being claimed determines how qualifying R&D expenditure is treated and how the benefit is received.

The Merged R&D Expenditure Credit (Merged RDEC) scheme and Enhanced R&D intensive support (ERIS) was introduced for accounting periods beginning on or after 1st April 2024.

For accounting periods beginning on or after 1st April 2024, HMRC have aimed at making R&D claims more accessible to all businesses by seeking to unify the way companies claim.

Merged R&D Expenditure Credit (Merged RDEC)

The RDEC scheme historically applied to larger companies and to SMEs in certain situations, such as when the R&D work being undertaken was subsidised or subcontracted or a project was grant funded. Now the RDEC scheme provides a taxable credit calculated as a percentage of qualifying R&D expenditure at 20% (was 13%) recognised above the operating profit line.

Going forward this will apply for most companies regardless of group headcount, turnover or gross assets. Whether a project was grant funded no longer applies either.

Enhanced R&D intensive support (ERIS)

For very select companies the R&D intensive SME scheme provides vital additional support for loss-making SMEs with high levels of R&D spend. A company qualifies when qualifying R&D expenditure represents at least 30% (was 40%) of total business expenditure (including group affiliated companies).

Under earlier SME rules, companies claim an additional deduction of 86% (was 130%) to the profit and loss on qualifying R&D expenditure, which decreased the corporation tax liability.

Eligible companies can then claim a 14.5% payable credit on the surrenderable trading losses, allowing them to receive cash support while continuing development work.

Comparison of UK R&D Tax Relief Scheme

Scheme	Credit structure	Typical net benefit	Applies to
RDEC / merged-style credit	20% taxable credit	~15% after corporation tax	Large companies and most SMEs
R&D intensive SME (ERIS)	Additional deduction + 14.5% payable credit on losses	Up to ~27% effective benefit	Loss-making SMEs with high R&D intensity

Example calculation: Claim Under the Merged Scheme

A manufacturing company spends £200,000 developing an advanced production process designed to reduce material waste. Engineers test multiple prototype configurations before reaching a workable solution.

The company applies the merged R&D scheme credit to its qualifying development costs.

£200,000 qualifying R&D expenditure

× 20% credit

= £40,000 R&D credit

After corporation tax is applied, the net benefit is typically around £30,000, depending on the company’s tax position.

Example calculation: SME R&D Tax Relief Claim

A software company spends £125,000 on qualifying R&D activities while developing a new data-processing platform. The project involves testing several software architectures before identifying a stable solution. It made a trading loss of £100,000 that year with no other taxable income.

The additional deduction provided by the scheme would be £125,000 x 86% = £107,500

Assuming the company meets the ERIS intensity condition (30%) it can surrender the lower of the enhanced expenditure (186% of qualifying expenditure) and the unrelieved trading loss.

Unrelieved trading loss: £207,500 (£100,000 loss – additional deduction)

Enhanced expenditure: £125,000 x 186% = £232,500

The payable credit will be £207,500 x 14.5% = £30,088

The credit will be subject to a cap based on £20,000 plus three times the company’s relevant PAYE and NIC liabilities unless qualifying intellectual property is being generated.

How to Claim R&D Tax Relief in the UK

To claim R&D tax relief, your company must identify qualifying R&D projects, calculate the related expenditure, and submit the claim through the corporation tax return.

The claim process largely consists of the following steps.

Identify qualifying R&D projects
Start by identifying projects that attempt to resolve scientific or technological uncertainty. Only development work aimed at achieving an advance in science or technology can qualify for R&D tax relief.
Calculate qualifying R&D expenditure
Next, determine the development costs connected to those projects. Qualifying expenditure may include staff costs, subcontracted R&D work, externally provided workers, software or cloud infrastructure used in development, and materials consumed during experimentation. When resources support both R&D and non-R&D work, allocate costs based on the portion related to the R&D activity.
Prepare technical project descriptions
Your company must describe the technical challenges addressed in each R&D project. The explanation usually outlines the technological uncertainty, the development work performed, and the experimentation or testing carried out to resolve the problem.
Submit the Additional Information Form (AIF)
HMRC requires companies to submit an Additional Information Form alongside the R&D claim. The form summarises the qualifying projects, expenditure calculations, and supporting details used in the claim.
Submit the claim through the CT600 corporation tax return
Your company submits the R&D claim as part of the CT600 (and CT600L) corporation tax return for the relevant accounting period.
HMRC reviews the claim
HMRC aims to review claims as quickly as possible and may request further clarification if additional information is needed. Processing times vary.
Once accepted, the benefit is provided through a corporation tax reduction/refund or a payable credit, depending on the company’s tax position.

Documentation Required for an R&D Tax Relief Claim

HMRC expects companies to keep documentation that supports both the technical basis of the R&D work and the calculation of qualifying expenditure. These records help demonstrate that the activities meet the definition of R&D and that the costs included in the claim are accurate.

If records do not exist, this does not preclude you from claiming however best practice would be to be more cognizant of record keeping requirements as you continue to make R&D claims.

We are happy to advise on what is actually useful record keeping going forward.

Technical Project Evidence

Technical documentation should show the development work carried out during the R&D project. This typically includes records describing the technical challenges addressed, the development work performed, and the testing or experimentation carried out.

Cost Calculation Evidence

Companies must maintain records explaining how qualifying R&D expenditure was calculated. These records show how staff time, subcontractor costs, and other development resources were allocated to R&D projects.

Supporting Documentation

Supporting evidence can include:

development documentation
engineering reports
testing results
project management records
technical specifications or design documents

Frequently Asked Questions About R&D Tax Relief

How far back can companies claim R&D tax relief?

Companies can normally submit claims for up to two years after the end of the relevant accounting period.

How long does HMRC take to process an R&D claim?

Many claims are processed within HMRCs defined customer service agreement window, although complex claims may take longer if HMRC requests additional information.

Can startups claim R&D tax relief?

Yes. Startups can claim R&D tax relief as long as they are engaged in qualifying R&D activity for instance developing new technology, products, or processes and the company is subject to UK corporation tax.

Can companies claim R&D tax relief every year?

Yes. Companies can submit a claim each year they incur qualifying R&D expenditure.

Can a company claim for multiple R&D projects in the same tax year?

Yes. A single R&D claim can include multiple qualifying projects carried out during the same accounting period.