When most people hear “R&D tax credits,” they picture laboratories, tech startups, and scientific research.
It’s one of the most misunderstood tax reliefs available – and that misunderstanding means thousands of businesses are missing out on money they’re entitled to.
If your company has ever developed a new product, improved a process, or solved a technical problem that didn’t have an obvious answer, there’s a reasonable chance you’re doing qualifying R&D.
Construction firms working out how to build on difficult sites, manufacturers adapting production lines for new materials, software companies building bespoke tools for clients, food and drink businesses developing new formulations – all of this can count.
Since April 2024, the way R&D tax relief works has changed under a new merged scheme. Here’s what you need to know.
What Actually Counts as R&D?
This is where the confusion starts – and where most businesses rule themselves out too early. HMRC’s definition of R&D isn’t about having a research department or a patent.
It’s about advancing science or technology by working through uncertainty that a competent professional in the field couldn’t easily resolve.
In practice, that covers a lot of everyday problem-solving that businesses don’t think of as “research.” A few examples:
- Construction: Designing structural solutions for unusual ground conditions, working out how to retrofit energy-efficient systems into listed buildings, or developing methods for building in constrained urban spaces
- Manufacturing: Adapting machinery to handle new materials, developing automated quality control processes, or improving production efficiency beyond what standard approaches can achieve
- Software: Building custom platforms that require solving novel technical challenges, developing new algorithms, or integrating systems in ways that haven’t been done before
- Food and drink: Creating new recipes that require overcoming technical challenges around shelf life, texture, or allergen management
The key question is whether there was genuine technical uncertainty – something you didn’t know how to do at the outset and had to work through. If the answer was obvious or could have been found by Googling it (or ChatGPT’ing it…), it probably doesn’t qualify.
But if your team had to experiment, test, iterate, or develop something new to get the result, it very well might.
How the Merged Scheme Works
For accounting periods beginning on or after 1 April 2024, all R&D tax relief claims go through the merged scheme. This replaced the previous SME and RDEC schemes with a single system for companies of all sizes.
Under the merged scheme, your company receives an expenditure credit equal to 20% of qualifying R&D costs.
Because that credit is taxable, the real benefit after corporation tax works out at around 15% to 16.2% depending on your tax rate.
So on £100,000 of qualifying expenditure, you’d be looking at a net benefit of roughly £15,000 – either as a reduction in your tax bill or, if your company is loss-making, potentially as a cash payment from HMRC.
It’s not a life-changing windfall on smaller claims, but it adds up – especially if you’ve been doing qualifying work for years without claiming. And for companies spending larger amounts on development, the numbers become very meaningful.
What Costs Can You Claim?
The qualifying expenditure categories are broader than most people expect. You can claim for:
- Staff costs: salaries, employer NICs, and pension contributions for anyone directly involved in the R&D work, as well as staff carrying out qualifying support activities
- Subcontractors and agency workers: payments to UK-based subcontractors or externally provided workers carrying out R&D under your direction, capped at 65% of the cost
- Materials and consumables: anything used up or transformed during the R&D process
- Software, cloud computing, and data: licences for software used in R&D, cloud computing costs, and payments for datasets
One common misconception is that you can only claim for dedicated R&D staff. In reality, if an employee spends part of their time on qualifying R&D and part on other work, you can claim for the proportion of their time spent on R&D. For many SMEs, the qualifying work is spread across several people rather than concentrated in one team.
It’s also worth knowing that from April 2024, costs for overseas subcontractors and workers are generally no longer claimable. The work needs to be done in the UK.
The PAYE Cap
There’s a limit on how much your company can receive in cash from HMRC. The cap is set at £20,000 plus 300% of your total PAYE and National Insurance liabilities for the period.
For most companies with a UK-based team, this won’t be an issue. But if your payroll is very small – say you’re a director-only company that outsources most of its work – the cap could reduce what you get back. Any excess carries forward to future periods, so it’s not lost entirely.
Loss-Making SMEs: ERIS
If your company is loss-making and spends heavily on R&D, you may qualify for a more generous scheme called Enhanced R&D Intensive Support (ERIS). To be eligible, your qualifying R&D expenditure needs to make up at least 30% of your total expenditure for the period.
Under ERIS, the effective benefit is around 27% of qualifying costs – nearly double the merged scheme rate. This makes it particularly valuable for early-stage businesses investing heavily in product development but not yet profitable.
There’s also a one-year grace period, so if your R&D intensity dips below 30% in one year, you can still claim under ERIS if you met the threshold the year before.
Getting the Claims Process Right
HMRC has tightened up the claims process over the past couple of years, and getting the admin wrong can invalidate your claim entirely. There are three steps you need to follow:
- Claim notification: if you’re claiming for the first time or haven’t claimed in the last three accounting periods, you must notify HMRC within six months of the end of your accounting period. Miss this window and you can’t claim – full stop
- Additional information form (AIF): every claim must include a completed AIF submitted online, with project descriptions, cost breakdowns, adviser details, and sign-off from a named senior officer at the company. HMRC is actively rejecting claims without one
- Company tax return: the claim goes through your CT600, with the relevant boxes ticked to confirm the notification and AIF have been submitted
The AIF in particular requires you to describe your R&D properly – what the technological uncertainty was, what you did to overcome it, and why the answer wasn’t readily available.
Vague descriptions like “we developed a new product” won’t be enough.
How Double Point Can Help
R&D tax credits are one of the most valuable reliefs available to UK businesses, but they’re also one of the most under-claimed – not because companies aren’t doing qualifying work, but because they don’t realise it counts.
At Double Point, we help our clients identify qualifying R&D activities, gather supporting information, and submit robust claims.
Whether you’ve never claimed before and want to explore whether you’re eligible, or you’ve been claiming and want to make sure you’re getting the most out of the new merged scheme – we’re here to help.
Book a free consultation with us today, and we’ll talk through your business to see what might qualify.