HMRC R&D Tax Relief UK

HMRC R&D tax relief UK was restructured by Finance Act 2024 into a single merged scheme for accounting periods beginning on or after 1 April 2024, replacing the separate SME R&D relief and RDEC (Research and Development Expenditure Credit) frameworks that had operated since 2013. The merged scheme delivers a 20% above-the-line taxable credit on qualifying R&D expenditure, with a higher rate of relief preserved for loss-making R&D-intensive SMEs through the ERIS (Enhanced R&D Intensive Support) regime. HMRC has materially expanded compliance activity in this area following NAO and PAC evidence on fraud and error in the pre-merger schemes.

The merged scheme replaces SME R&D relief and RDEC from April 2024

HMRC merged the SME R&D relief and RDEC schemes into a single merged R&D scheme for accounting periods beginning on or after 1 April 2024 under Finance Act 2024, simplifying the structure but tightening the eligibility and evidence requirements. The pre-merger SME scheme provided a 230% deduction (reduced to 186% from April 2023) and a 10% repayable credit for loss-making SMEs. The pre-merger RDEC scheme provided a 13% above-the-line credit, raised to 20% from April 2023. The merged scheme uses the 20% RDEC mechanism as its base, providing an above-the-line taxable credit calculated at 20% of qualifying R&D expenditure.

For most SMEs, the merged scheme represents a reduction in cash benefit compared with the pre-April 2023 SME framework, but a similar position to the post-April 2023 SME regime. For large companies (formerly RDEC claimants), the merged scheme delivers broadly the same outcome as continuing the 20% RDEC rate. The structural change is the unification: a single set of rules, definitions, and computational steps replaces the two parallel regimes.

Loss-making R&D-intensive SMEs qualify for enhanced support under ERIS

Loss-making SMEs with R&D expenditure of at least 30% of total expenditure qualify for enhanced support under the ERIS (Enhanced R&D Intensive Support) regime, which delivers a higher cash benefit than the merged scheme baseline. The 30% intensity threshold was reduced from 40% (the figure in the original April 2023 SME-intensive design) by Finance Act 2024 to broaden the eligible population. The mechanism preserves a higher rate of relief for the cohort of companies most acutely dependent on R&D activity, particularly early-stage life sciences and deep-tech companies.

The ERIS rate provides a deduction and a payable credit on the resulting loss surrendered. The combined cash equivalent is materially higher than under the merged scheme for loss-making intensive SMEs, preserving the policy intent of supporting R&D-led innovation in pre-revenue businesses. HMRC publishes the operational guidance through its CIRD (Corporate Intangibles Research and Development manual) series.

HMRC introduced the additional information form requirement from August 2023

HMRC introduced a mandatory additional information form (AIF) requirement for all R&D claims submitted from 8 August 2023, requiring claimants to provide detailed project-level information, qualifying expenditure breakdowns, and supporting narrative as part of the claim. The AIF is submitted online before the corporation tax return that includes the R&D claim. Without an AIF, HMRC will not accept the R&D claim. The requirement is intended to provide HMRC with the information needed to assess the validity of the claim upfront, reducing the reliance on enquiry compliance.

The AIF must include a named senior officer who certifies the accuracy of the claim, and an agent reference number where the claim is prepared by an external adviser. The senior officer declaration is a material change from the pre-2023 position where claims could be made without an identified responsible individual within the claimant company. HMRC has used the AIF as the operational backbone for the post-2024 compliance regime.

HMRC compliance activity has expanded materially since 2022

HMRC has materially expanded compliance activity on R&D claims since 2022, with the NAO and Public Accounts Committee identifying significant fraud and error in the pre-reform SME scheme. The NAO report on R&D tax reliefs identified concerns about the level of error and fraud in the SME scheme, with substantial estimated annual losses to fraud and non-compliance. HMRC responded with a sharp expansion in compliance resourcing, the introduction of the AIF, the senior officer declaration, and tighter rules on subcontracted R&D, overseas R&D, and externally provided workers.

The Treasury Committee has heard evidence on the operational impact of the compliance expansion, with R&D adviser organisations reporting materially longer claim processing times and more frequent HMRC enquiries. HMRC has committed to publishing performance data on R&D compliance activity through its annual reports and accounts.

Subcontracted R&D and overseas R&D rules tightened from April 2024

Subcontracted R&D and overseas R&D rules were tightened from April 2024, with most overseas R&D expenditure no longer qualifying for relief unless specific exemptions apply. The pre-2024 regime permitted relief on R&D undertaken anywhere, subject to standard eligibility rules. Finance Act 2023 introduced restrictions on overseas R&D, with limited exceptions for situations where the R&D could not reasonably be undertaken in the UK (for example, geographical or regulatory reasons specific to the project). The restrictions were intended to focus the relief on R&D activity that contributes to the UK economy.

The subcontracted R&D rules under the merged scheme follow the historic RDEC approach more closely than the historic SME approach, with the claimant generally being the principal commissioning the R&D rather than the subcontractor providing the services. HMRC guidance on the subcontracted R&D framework sits in the CIRD manual and has been progressively expanded through 2024 and 2025 to address operational queries.

The qualifying expenditure categories continue under the merged scheme

Qualifying R&D expenditure under the merged scheme continues to cover staff costs, externally provided workers, subcontractors (subject to the merged scheme rules), software, consumables, cloud computing costs, and data costs, with the categories set out in the Corporation Tax Act 2009 part 13. Cloud computing and data costs were added to the qualifying expenditure list by Finance Act 2023, recognising the centrality of those inputs to modern R&D activity, particularly in AI, machine learning, and data-intensive research. The change applies for accounting periods beginning on or after 1 April 2023.

The qualifying expenditure framework determines the base on which the 20% credit is calculated. Staff costs include salary, NIC, and employer pension contributions for staff directly engaged in qualifying R&D activity. The pro-rata calculation across mixed-role staff is one of the operationally complex areas where HMRC enquiries most frequently focus.

HMRC pays the credit through the corporation tax return process

The merged scheme credit is delivered through the corporation tax return, with the 20% above-the-line credit recognised in the profit and loss account and either reducing the corporation tax payable or generating a payable credit where the company has insufficient corporation tax liability to absorb the credit. The credit is taxable for corporation tax purposes (hence "above the line"), with the net cash benefit depending on the company's effective corporation tax rate. For a large company paying the 25% main rate, the net cash benefit on £1m of qualifying R&D is approximately £150,000. For a company paying the 19% small profits rate, the net benefit is approximately £162,000.

Loss-making companies under the merged scheme can surrender the resulting loss for a payable credit, with the specific computational mechanics set out in HMRC guidance. The payable credit is capped under the PAYE/NIC restriction, which limits the cash element to a multiple of the company's PAYE/NIC liability, intended to prevent abuse by shell companies with minimal staff.

What is the HMRC R&D tax relief UK rate under the merged scheme?

The merged R&D scheme delivers a 20% above-the-line taxable credit on qualifying R&D expenditure for accounting periods beginning on or after 1 April 2024 under Finance Act 2024. The credit is recognised in the profit and loss account and either reduces the corporation tax payable or generates a payable credit for loss-makers.

Who qualifies for ERIS under the new R&D tax credit UK rules?

Loss-making SMEs with R&D expenditure of at least 30% of total expenditure qualify for ERIS, providing enhanced relief above the merged scheme baseline. The 30% intensity threshold was reduced from 40% by Finance Act 2024 to broaden the eligible population.

How does HMRC tax claim transparency AI affect the SME R&D relief landscape?

HMRC has materially expanded compliance activity since 2022, including the mandatory additional information form requirement from August 2023, the senior officer declaration, and tighter rules on subcontracted and overseas R&D. The changes were prompted by NAO and PAC evidence on fraud and error in the pre-merger SME scheme.

What is the rdec scheme under the merged framework?

The historic RDEC scheme has been merged into the new combined R&D scheme from April 2024 under Finance Act 2024. The merged scheme uses the RDEC above-the-line mechanism at 20%, applied to all claimants regardless of company size, with separate ERIS provisions for loss-making R&D-intensive SMEs.

Does overseas R&D qualify for relief under the new rules?

Overseas R&D expenditure is restricted from April 2024 under Finance Act 2023. Most overseas R&D no longer qualifies unless specific exemptions apply (for example, where the R&D could not reasonably be undertaken in the UK for geographical or regulatory reasons). The restriction is intended to focus the relief on R&D contributing to the UK economy.

What R&D costs qualify under the research development tax relief framework?

Qualifying expenditure includes staff costs, externally provided workers, qualifying subcontractor costs, software, consumables, cloud computing costs, and data costs per Corporation Tax Act 2009 part 13 as amended. Cloud and data costs were added by Finance Act 2023, recognising their centrality to modern R&D activity, particularly in AI and data-intensive research.

How we verified this

This article draws on the following primary UK sources:

• HMRC: R&D tax reliefs statistics and operational guidance (CIRD manual)
• Finance Act 2023 (legislation.gov.uk) for the SME-intensive regime and overseas R&D restrictions
• Finance Act 2024 (legislation.gov.uk) for the merged scheme and ERIS framework
• Corporation Tax Act 2009 (legislation.gov.uk) for the underlying qualifying expenditure rules
• NAO: R&D tax reliefs report
• Public Accounts Committee: R&D tax credits evidence sessions
• HMRC R&D Compliance guidance and additional information form publications

No secondary aggregators, no press releases from commercial providers, and no statistics without a named government or regulatory source were used.