The R&D Scheme In Detail

The purpose of the UK Research and Development (R&D) tax incentives scheme is to encourage innovation and technological advancement by providing tax relief to businesses that invest in research and development. The key objectives of the scheme are to:

The scheme has evolved significantly since its inception, reflecting the government’s ongoing commitment to fostering innovation and economic growth. Here’s a concise history of the scheme:

• 2000: It was introduced by the Labour government under Chancellor Gordon Brown, initially targeting small and medium-sized enterprises (SMEs).
• 2002: A separate scheme was launched for large companies, the large company super deduction scheme. This would later evolve into the R&D Expenditure Credit (RDEC) scheme.

• 2008–2013: Despite the global financial crisis, the scheme was maintained and even expanded. The SME enhancement rate increased from 150% to 225% by 2013.
• 2013: Introduction of the RDEC scheme for large companies, allowing them to claim a taxable credit visible above the line in their income statements.
• 2015: The SME super deduction rate increased to 230%, and the RDEC rate was improved.
• 2016: The large company super deduction scheme was finally abolished, so large companies can only claim under RDEC.

• 2020–2021: Consultations were held to modernise the scheme, including expanding eligible costs to also include dataset costs and cloud computing.
• 2023: New compliance measures were introduced, including a mandatory Additional Information Form, plus changes to qualifying expenditure.
• 2024: A merged scheme was introduced on 1 April 2024, combining elements of the SME and RDEC schemes to simplify the system and reduce abuse.

To claim UK R&D tax relief under the 2025 rules, your company must meet several eligibility requirements. These are designed to ensure that only genuine, innovation-driven projects receive support. The key criteria are:

1. Your company must be UK-registered and subject to UK Corporation Tax.


2. You must be undertaking a project that meets the R&D guidelines to qualify as an R&D project.

To qualify as an SME under the legacy SME scheme (for periods starting before 1 April 2024), or under the ERIS (Enhanced R&D Intensive scheme) your company must have:

• Fewer than 500 employees, and
• Either:
  • Annual turnover under €100 million, or
  • Balance sheet total under €86 million

An R&D claim is made on your Corporation Tax Return (CT600) as either an adjustment to your taxable profits, or a credit against your tax liability. As relief is given through the Corporation Tax system, it is those rules around timing, submission and HMRC review that must be followed.

In order to support your R&D claim, you must supply supporting evidence via an Additional Information Form (AIF), prior to the submission of your Corporation Tax Return with the R&D included.

CTSA is the system under which companies calculate, report, and pay their own Corporation Tax. It has been in place since 1999 and is governed by HMRC. Here’s how it works in 2025:

1. Self-Assessment: Companies are responsible for:
   • Calculating their own Corporation Tax liability.
   • Filing a Company Tax Return (CT600).
   • Paying the tax due without being prompted by HMRC.
2. Filing Deadline:
   • The return must be filed within 12 months of the end of the accounting period.
   • However, tax must be paid within 9 months and 1 day after the end of the accounting period.
   • Any amendments to the tax return, including an R&D claim, must be filed within 24 months of the end of the accounting period. After this you cannot make any amendments to that return.

As of 2025, HMRC state they aim to process R&D tax relief claims within 40 days, but actual processing times can vary depending on several factors:

• More complex or larger claims or those selected for further review may take longer.
• First-time claimants or those who haven’t claimed in the last 3 years must submit a Claim Notification Form, which could add time to the process.
• Completeness of the claim: Missing or unclear information can delay processing.
• Peak periods (e.g. around tax deadlines) may slow down processing.

The AIF is a mandatory document that must be submitted to HMRC before or alongside your Company Tax Return (CT600) when making a claim for R&D tax relief. It was introduced in August 2023 to improve claim quality and reduce fraud. The information which has to be provided includes:

• Company Details – Name, UTR, Details of person at the firm and any R&D agent supporting the claim.


• Accounting Period start and end dates – If the period is longer than 12 months, you need to submit more than one AIF.


• R&D Expenditure – Total qualifying expenditure, split between categories of costs and % of R&D against total costs.


• Project Descriptions – up to 10 projects, or those covering 50%+ of the claim’s expenditure and a minimum of 3 projects, if more than 3 have been carried out. This needs to include details of why these projects meet the guidelines.

The AIF must be submitted before, or on the same day as your CT600. If submitted after the CT600, your R&D claim will be rejected.

In the UK, you generally have 2 years from the end of your accounting period to make a claim for R&D tax relief. i.e. if your year end is 31 December 2024, your R&D tax relief claim will need to be filed no later than 31 December 2026.

For accounting periods starting on or after 1 April 2023, if you are a first time or infrequent claimant then you may need to submit a Claim Notification Form (often referred to as pre-notification) within 6 months after the end of the period you want to claim for.

Claim Notification Form requirements are complex, so please ensure you consider whether you need to make one as failure to submit this form (if required) will make your R&D claim invalid, even if you file it within the 2-year window.

The R&D Claim Notification Form is a mandatory step introduced by HMRC for companies intending to claim R&D tax relief. For accounting periods starting on or after 1 April 2023, you may need to submit a pre-notification form within 6 months after the end of the accounting period you intend to claim for.

Failure to submit this form (if required) will make your R&D claim invalid, even if you file it within the 2-year window.

The form is a formal notice submitted to HMRC to inform them of your intention to make an R&D claim. It must be submitted if:

• You are claiming for the first time, or
• Your last R&D claim was more than 3 years before the end of the current claim notification period.
• Please note that any R&D claims submitted on amended tax returns for periods starting before 1 April 2023 and submitted after 1 April 2023, do not count for this purpose.

There are 3 key requirements to meet the definition of an R&D project.

1. There must be a project taking place, R&D cannot happen by accident.
2. Your project must be seeking to achieve an advance in science or technology.
3. In seeking to achieve the advance, you must do work to overcome scientific or technological uncertainties.

The work should aim to:

• Develop new or appreciably improved products, processes, devices or services.
• Enhance performance, reliability, or efficiency in a way that is not straightforward.
• The advance must contribute to the overall field of technological knowledge, not just your company’s internal capabilities.

If the solution is routine or already publicly available, it’s not an advance.

Technological or scientific uncertainty exists when a competent professional in the field is unable to say whether something is scientifically or technologically possible, or how to achieve it in practice, even after reviewing all available knowledge and solutions.

Consider:

• Uncertainty About Feasibility – it could be unclear whether a desired outcome can be achieved using current technology.
• Uncertainty About Method – i.e. that the goal might be known, but how to achieve it is not.
• Requires Iteration and Experimentation – the project involves trial and error, prototyping, or testing to resolve the uncertainty.

HMRC might think you don’t have an R&D project if you cannot show that there was a project which:

• Has a clear objective
• Has a plan or method to resolve identified uncertainties.
• Can show examples such as dates the project began, minutes, drawings, email exchanges and other relevant records your hold.

In the context of UK R&D tax relief, the “competent professional” is a key concept used to assess whether a project involves genuine scientific or technological uncertainty. Without a competent professional involved you do not have an R&D project.

A competent professional is someone who:

1. Has relevant qualifications or experience in the field of science or technology related to the R&D project.
2. Understands the current state of knowledge in that field, including what is publicly known and what is considered routine.
3. Can make informed judgments about whether a technological uncertainty exists and whether a proposed solution is readily deducible.

Their role is to assess whether the problem being tackled is genuinely uncertain from a technological standpoint-not just unfamiliar to your team.

The benefit for an SME is via enhanced R&D expenditure. For R&D expenditure which occurred after 1 April 2023 you can deduct an additional 86% (130% previously, for costs before 1 April 2023) of your R&D expenditure from your taxable profits.

This is in addition to the 100% normal deduction, which gives an enhanced R&D expenditure of 186% to reduce your taxable profits by.

If you have a corporation tax liability, then the R&D benefit reduces this liability. The benefit is a 21.5p reduction for every £1 spent on R&D.

If you are loss-making then you can surrender the enhanced loss for a cash credit. You can surrender up to the 186% of the enhanced expenditure for a cash credit rate of 10%. This gives a benefit of up to 18.6p for every £1 spend on R&D.

If you are a loss-making R&D-intensive SME, you can qualify for a higher cash credit rate when surrendering your R&D enhanced losses. This credit rate is 14.5% rather than 10%. This provides a benefit of up to 26.9p for every £1 spent on R&D.

In order to access this, your R&D spend needs to be 40% or more of your total expenditure in your accounts.

The rules are fairly similar to the pre-April 2024 rules but with three small changes:

1. The R&D intensity rate has dropped from 40% to 30%.
2. The company must be loss-making prior to making the R&D claim.
3. There is now a one-year grace period. If you qualified in the previous year but fall just below the threshold this year (due to a one-off event), you can still claim the enhanced support.

Other than these changes, the benefit remains the same at 26.9p for every £1 spent on R&D tax incentives.

If you are large entity, the benefit is via a gross RDEC credit. For expenditure after 1 April 2023 the gross RDEC rate was 20% of qualifying R&D expenditure (it was 13% prior to 1 April 2023).

This gross RDEC credit is taxable at the UK Corporation Tax rate.

This provides a net benefit of 15p for every £1 spent on R&D (if you’re paying corporation tax at the higher rate of 25%) or 16.2p for every £1 (if you pay corporation tax at the lower rate of 19% or are loss-making).

For accounting periods starting after 1 April 2024, the SME and RDEC schemes have been merged. So, unless you are an R&D intensive SME, all companies, regardless of size, now follow the old RDEC style of benefit.

All companies can now access a gross taxable credit of 20%. Where the net benefit remains at either 15p or 16.2p for every £1 spent on R&D expenditure, depending on your corporation tax rate.

As the R&D scheme is under corporation tax self-assessment, once you have submitted a claim on your tax return, the claim gets processed by HMRC. For a proportion of these claims HMRC might decide to ask further questions via an R&D enquiry. Please note if you don’t get an enquiry it does not mean HMRC have checked and accepted the documents.

This enquiry is called a compliance check and is part of HMRC’s compliance strategy to ensure that only valid claims receive tax relief. Historically, HMRC has opened compliance checks into less than 5% of all R&D claims, however over recent years this has increased to as many as 17% of all R&D claims.

If you do receive an R&D enquiry this will be via a letter and will likely come from either the Individual and Small Business Compliance (ISBC) team or the Wealthy and Mid-Sized Business Compliance (WMBC) team.

There is nothing you can do to guarantee that you won’t receive an R&D enquiry . Random enquiries form part of HMRC’s compliance strategy, so you should always be prepared to defend and answer additional questions for any of the information you provide to HMRC.

However, HMRC may be more likely to open an enquiry into your claim if:

• The claim appears unusual or high-risk based on their internal risk assessment. This could include large expenditure or inconsistent figures within the supporting documents.
• The company operates in a sector not typically associated with R&D (e.g. hospitality, retail, consulting, wholesale, education). This is normally determined by internal processes which can include the industry you operate in.
• The project descriptions lack technical detail and focus too much on the commercial aspects of the project. Or the projects fail to demonstrate scientific/technological uncertainty.
• The claim was submitted by a company or agent with a history of non-compliance.

If you are to receive a letter from HMRC opening a compliance check, their approach will be slightly different
depending on which team at HMRC has opened the compliance check.

If it is opened by the Wealthy and Mid-Sized Business Compliance (WMBC) Team, then you will be allocated a named
caseworker who you will work with throughout the enquiry. You will be able to speak to the caseworker over the
phone if needed and are more likely to be able to organise meetings to discuss the questions with the
caseworker.

If it is opened by the Individual and Small Business Compliance (ISBC) team, then you will not be allocated a named
caseworker and will instead only have an email address to respond to.

Regardless if the enquiry is opened by WMBC or ISBC. The letter is likely to:

1. Request additional information about the R&D projects, costs, and methodology. It will likely ask for a lot
   of additional supporting information on the costs, such as proof of payment to subcontractors, employees
   etc.


2. It will likely ask for more specific detailed information about each of the R&D projects and ask for
   specific additional information to show that:
   
   
   
   • The work involved scientific or technological uncertainty.
   
   
   • The company sought an advance in the field.
   
   
   • The work was not readily deducible by a competent professional.
   
   
   
   


3. They might ask for information about whether the business has competent professionals who have assessed the
   R&D.


4. It might potentially ask for details of additional R&D projects that you haven’t provided the information
   for yet.

If you receive an R&D enquiry from HMRC, it’s important to respond carefully, thoroughly, and professionally.
Here’s a step-by-step guide on what to do:

1. Don’t panic – but it’s important to take care. An enquiry doesn’t mean your claim is
   invalid. HMRC may simply want to verify details. However, it’s important to treat it as a formal
   investigation.


2. Review the enquiry letter carefully in order to fully understand what HMRC is asking for.
   In particular carefully note any deadlines for response. These are likely to be 30 days from the date of the
   letter having been received.


3. Prepare to provide full details responding to all of HMRC’s questions. If you do not have
   the details or are worried you don’t understand all the questions, then it is important to ensure that you
   involve the right people.
   
   
   Any response to technical questions should involve your technical leads and competent professionals to
   provide detailed responses. It is worth using an R&D advisor with experience in responding to compliance
   checks to support you to manage the response from an early stage.
   


4. Respond clearly, professionally and politely. Address each question directly in a friendly
   but persuasive tone. Be honest, if something was claimed in error you should acknowledge and correct it.
   


5. If you need more time, request an extension. It is not always granted but usually you are able to request
   the required additional time that you need.

1. Claim accepted: If HMRC is satisfied, the claim is processed as normal.
2. Claim amended: HMRC may reduce the value of the claim if some costs or projects don’t qualify.
3. Claim rejected: If the claim is found to be invalid, for example they don’t believe there are R&D activities, it may be denied entirely.
4. Penalties: If HMRC believes the claim was careless or deliberately incorrect, penalties may apply.

Please note that should HMRC reject your claim and close the compliance check, you are able to appeal their decision.

Generally, if you want to appeal a closure notice to an R&D enquiry, there are three approaches that you can utilise.

1. Have a statutory review from the SOLS (Solicitors Office and Legal Services) department. This is HMRC’s
   in-house legal team, who step in to independently review the case, separate from the original decision-maker.


2. Apply for Alternative Dispute Resolution (ADR). ADR is the process of bringing together the taxpayer and HMRC
   decision-maker, together with a neutral HMRC facilitator to help review the case. It is aimed at reaching a
   mutually acceptable resolution to the case. It is often faster and more cost-effective than going to tribunal.


3. The final option is to consider listing for tax tribunal. This is a formal legal process where you can appeal
   HMRC’s decision. At a tribunal you and HMRC present your reasoning, and a judge will review the evidence and
   make a legally binding decision. The costs of going to tribunal can be significant, so it is unlikely to be an
   approach to take unless the value of benefit which is in question is significant.

Yes, it is possible to receive penalties from HMRC in relation to an R&D tax relief claim, if the claim is found to be inaccurate, careless, or deliberately misleading.

If HMRC believe that the errors found were due to negligence or lack of reasonable care, they are able to charge 15-30% of the R&D benefit as a penalty. If you have taken care with your original R&D claim documentation and especially if you have used an experienced R&D advisor, you should be able to mitigate the likelihood of penalties.

Here’s a broad summary of the recent changes to the UK R&D tax incentives, focusing on reforms introduced between 2023 and 2025:

1. Merged R&D Scheme – From periods on or after 1 April 2024 the SME and Large company schemes have been merged into a single scheme. Furthermore, this scheme includes changes to overseas expenditure and changes to the subcontracted and subsidised R&D rules.
2. R&D Intensive Scheme – The introduction of the category of loss-making SMEs that spend 30% or more of their total expenses on R&D. These companies can claim a 14.5% payable credit, which replaces the old SME tax credit scheme.
3. R&D eligible costs have been expanded to include cloud computing costs and datasets. Mathematics has also been added as a qualifying field of science.
4. For all claims submitted post-August 2023, there must first be an Additional Information Form (AIF) submitted detailing the evidence of the R&D activities.
5. For periods starting after 1 April 2023, certain companies must pre-notify HMRC of their intention to claim R&D relief.
6. Increased HMRC scrutiny. Since 2023, HMRC has increased compliance checks and enquiries with up to 17% of R&D claims now being enquired into.

Two key factors behind HMRC’s shift in approach since 2023 are:

1. The prevention of error and fraud. Leading up to the changes HMRC had identified a rise in fraudulent or inflated claims, particularly under the SME scheme. Measures like the AIF and pre-notification form were introduced to increase transparency and accountability of taxpayers making an R&D claim.


2. To better target the relief to those companies that are undertaking genuine R&D projects and R&D intensive companies, specifically within the UK. This is partly due to the cost of the R&D schemes to the treasury having grown significantly. The changes aim to control the cost to the treasury whilst still supporting innovation.

As of 1 April 2024, the UK government introduced new restrictions on overseas R&D expenditure to ensure that tax relief is focused on UK-based innovation. These changes apply to both the merged R&D scheme and the R&D Intensive Scheme and are there to encourage UK-based R&D activity.

The new rules mean that:

• Subcontractor costs are no longer eligible for relief if the R&D activities take place outside of the UK.
• Externally provided worker (EPW) costs must now be subject to UK PAYE and NIC costs.

Under the previous SME scheme, if a company’s R&D was subsidised (e.g. through grants or contributions from another party), it couldn’t claim relief through the SME scheme, rather the RDEC scheme had to be utilised.

For periods beginning on or after April 2024, under the merged scheme, subsidised R&D expenditure is now eligible for relief. This broadens access to the scheme for companies that receive grant funding and makes the scheme as generous as it ever has been for grant-funded start-ups.