R&D Tax Credits Explained
Written and reviewed by the R&D Tax Accountants editorial team. Last reviewed 8 August 2026.
R&D tax relief reduces the Corporation Tax bill of a company that spent money resolving a scientific or technological uncertainty, and can pay cash to a company making a loss. It is set out in Part 13 of the Corporation Tax Act 2009 and interpreted through the DSIT Guidelines on the Meaning of Research and Development for Tax Purposes, which HMRC applies through its Corporate Intangibles Research and Development Manual.
Almost everything about how a claim is made changed between April 2023 and April 2024. The rates moved, two schemes became one, new cost categories arrived, and two mandatory forms were introduced in front of the claim. This page sets out the position as it stands, and where the old rules still apply.
The Statutory Test for R&D Tax Purposes
The test is narrower than most companies expect and it has nothing to do with how hard the work felt. HMRC asks whether the project sought an advance in a field of science or technology, whether it faced scientific or technological uncertainty, and whether that uncertainty could not readily have been resolved by a competent professional working in the field. All three have to be present, and all three have to be evidenced.
The advance has to be an advance in the field, not an advance for your company. Building something your team has never built before is not enough if the knowledge already exists and is publicly available. Equally, the project does not have to succeed. A project abandoned because the uncertainty turned out to be insurmountable still qualifies, and the costs incurred before it stopped are still claimable.
Advances in the arts, humanities and social sciences, including economics, do not qualify in any circumstances. Nor does work that is purely commercial: a new market, a new business model or a new pricing structure is outside the definition however innovative it is.
Commercial Novelty Versus Technological Uncertainty
This is the single most common reason a claim fails. A company builds a genuinely new product, describes the product in its claim, and assumes the novelty of the product carries the claim. HMRC reads it, finds a description of a commercial achievement with no technological uncertainty in it, and rejects the claim or reduces it.
The distinction matters in the drafting. A narrative that says the company built a platform no competitor offers describes commercial novelty. A narrative that says the company could not determine, from published knowledge or from the experience of its own competent professionals, how to hold latency under a given threshold at a given data volume, and set out to establish whether it was achievable at all, describes technological uncertainty. The underlying work can be identical. Only one version is a claim.
Costs That Qualify and Costs That Do Not
Qualifying expenditure falls into defined categories: staff costs including salaries, employer National Insurance, pension contributions and some training; consumable items such as materials, fuel, power and water to the extent they were consumed in the R&D; software licence fees; data licences and cloud computing, including storage and platform costs; payments to contractors carrying out R&D; payments to clinical trial volunteers; and qualifying indirect activities such as the administrative, finance and maintenance work that supports the project.
Payments to unconnected subcontractors and to externally provided workers are restricted to 65% of the amount paid. Where the parties are connected, the claim is the lower of the payment made and the contractor's own qualifying costs. Getting this apportionment defensible matters more than getting it large.
Several things are excluded outright, and companies regularly try to include them. Production and distribution of goods and services, capital expenditure, the cost of land, patents and trademarks, and rent, rates and leasing costs all fall outside the relief.
Which Scheme Applies to Your Period
The accounting period decides the scheme, not the size of the company. For accounting periods beginning on or after 1 April 2024 there is a single merged R&D expenditure credit at 20%, available to SMEs and large companies alike, alongside Enhanced R&D Intensive Support for loss-making SMEs whose relevant R&D expenditure is at least 30% of total expenditure.
For accounting periods beginning before 1 April 2024 the old structure still applies. Smaller companies claim under SME R&D tax relief, which gives an extra 86% deduction and a payable credit of 10%, rising to 14.5% where the intensity condition is met. Larger companies and some SMEs claim RDEC, which reached 20% for expenditure from 1 April 2023 after sitting at 13% from 1 April 2020.
Because the boundary is drawn on the start date of the accounting period rather than on when the money was spent, companies with a year end part way through the transition can find two adjacent claims running on entirely different rules. That is normal, and it is worth checking rather than assuming continuity.
The Two Forms in Front of a Claim
An additional information form is now mandatory for every claim. It has to reach HMRC before the Company Tax Return, or on the same day but sent first. Without it the claim will not be accepted, and companies have lost otherwise valid claims purely on the order of submission.
A claim notification form is required as well for accounting periods beginning on or after 1 April 2023, where this is a first claim or where the last claim was made more than three years before the end date of the claim notification period. That window opens on the first day of the period of account and closes six months after it ends. Missing it makes the claim invalid, and there is no route back.
Both forms are recorded on the return. Box 656 confirms the claim notification form was submitted and box 657 confirms the additional information form was, and a payable credit needs the supplementary CT600L page.
Claim Deadlines
Where the period of account is 18 months or less, the deadline for making or amending a claim is 24 months from the last day of the period of account. Where it is longer than 18 months, the deadline is 42 months from the first day of the period of account.
The 24 month rule is the one companies know about, and it is not the binding one for a first-time claimant. The six month notification window closes long before it. A company that discovers the relief 20 months after its year end may still be inside the amendment window and already outside the notification window, which is why the first question on any new claim is whether notification was required and whether it happened.
The Tightening Since 2023
HMRC checked 9,700 R&D claims in 2023 to 2024, covering 17% of them, and recovered £441 million. Its estimate of error and fraud across the reliefs fell to 7.8% for that year, and to 14.6% for SMEs, down from 17.6% and 25.8% in 2021 to 2022. Of the compliance checks that were settled, 89% were resolved by agreement with the claimant.
The second round of HMRC's Mandatory Random Enquiry Programme, looking at 2021 to 2022 claims, found around half of SME claims non-compliant in part or in full and 30% non-compliant in full. Those findings are what produced the current checking rate and the two new forms.
The practical consequence is that a claim is now drafted to be read by someone looking for a reason to reject it. HMRC has 12 months from the date a claim is submitted to open a check, and it opens some after the money has already been paid. Guidance on the relief and on the wider funding landscape is published by HMRC and by the British Business Bank.