R&D Tax Credits Explained: How the UK Scheme Works

What counts as R&D for tax purposes?

R&D for tax means a project that seeks an advance in science or technology by resolving uncertainty that a competent professional couldn't readily resolve. It covers software, engineering, life sciences and more. It does not cover work in the arts, humanities or social sciences, or routine product development where the answer is already known. The test comes from the government's guidelines on the meaning of R&D for tax purposes, which your adviser will apply project by project.

How does the merged scheme work?

The merged scheme pays an above-the-line credit of 20% of qualifying R&D expenditure. The credit counts as taxable income, so its net value is lower: roughly 15% for a company paying the main rate of Corporation Tax. Loss-making companies can still receive the credit as cash, after a notional tax deduction. The credit is capped at £20,000 plus 300% of the company's relevant PAYE and National Insurance liabilities, unless an exemption applies. See the merged scheme and ERIS explained.

What is ERIS?

Enhanced R&D Intensive Support is for loss-making SMEs whose relevant R&D spend is at least 30% of their total expenditure. It gives an extra 86% deduction on qualifying costs (186% in total) and lets the company surrender the resulting loss for a payable credit of up to 14.5%. Together that is worth up to about 27% of qualifying spend in cash. The credit is not taxable.

What can you claim for?

Qualifying costs include staff working on R&D, externally provided workers, subcontracted R&D, consumables, software, and data licences and cloud computing used directly in R&D. Since April 2024, payments for overseas subcontractors and workers are generally excluded, with limited exceptions. See what counts as qualifying R&D expenditure.

How do you make a claim?

1. Notify HMRC if needed. First-time claimants, and companies that haven't claimed in the previous three years, must submit a claim notification within six months of the end of the accounting period.
2. Prepare the claim. Most companies use an R&D tax adviser or accountant.
3. Submit the Additional Information Form. It is mandatory: a claim without it is invalid.
4. File the CT600 with the claim, within two years of the end of the accounting period.

How long does HMRC take to pay?

There is no guaranteed timescale. Clean claims are often paid within weeks to a few months of filing, but HMRC has increased compliance checks, and an enquiry can hold payment for months. See how long HMRC takes to pay R&D tax credits.

Can you get the money sooner?

Yes. Specialist lenders advance part of the expected credit, usually 50–80%, and are repaid when HMRC pays. It is short-term finance, so the cost depends on how long HMRC takes. See how much you can borrow against an R&D claim.