Research and development tax relief can reduce the cost of qualifying scientific or technological work carried out by UK companies. It may apply to new products, software, processes, materials or significant technological improvements, even when a project does not ultimately succeed.
The rules depend heavily on when the accounting period began. Periods starting on or after 1 April 2024 generally use the merged R&D Expenditure Credit scheme or Enhanced R&D Intensive Support, while earlier periods can still fall under the old SME or RDEC rules.
What Changed in This 2026 Update?
This update adds pre- and post-April 2024 scheme rules, effective benefit rates, the PAYE cap, SME linked and partner enterprise rules, the seven-stage payment process, indirect activities, adviser-risk guidance and HMRC’s 2026 targeted advance assurance pilot.
What Is Research and Development Tax Relief?
R&D tax relief is a Corporation Tax incentive for companies seeking an advance in science or technology by resolving scientific or technological uncertainty. Only companies within the UK Corporation Tax system can claim.
For accounting periods beginning on or after 1 April 2024, merged RDEC provides a taxable credit equal to 20% of qualifying expenditure.
ERIS is for qualifying loss-making R&D-intensive SMEs and uses an additional 86% deduction, producing 186% enhanced expenditure, with a 14.5% payable credit rate on surrenderable losses.
Which R&D Scheme Applies to Your Accounting Period?
| Accounting Period | Main Scheme Position | Key Point |
| Begins before 1 April 2024 | Old SME scheme or old RDEC | Legacy rules continue |
| Begins on or after 1 April 2024 | Merged RDEC or ERIS | New contracting, subsidy and overseas rules apply |
Under the old SME scheme, rates also depend on when expenditure was incurred. Costs before 1 April 2023 could receive a 130% additional deduction.
From 1 April 2023, the additional deduction generally fell to 86%, while the standard loss-making payable credit fell from 14.5% to 10%. R&D-intensive SMEs could retain a 14.5% credit rate on qualifying expenditure.
Legacy SME restrictions can move expenditure into RDEC instead. These include certain work subcontracted to the company, subsidised or notified State aid expenditure and the €7.5 million State aid cap for an individual project.
Because the normal claim window can run for 24 months from the end of a period of account of 18 months or less, some companies in 2026 may still be claiming for periods that began before 1 April 2024.
How Much R&D Tax Relief Could a Company Receive?
| Scheme and Position | Headline Treatment | Approximate Effective Benefit |
| Old SME, profitable, costs before 1 April 2023 | 130% additional deduction | Up to 24.7% at a 19% Corporation Tax rate |
| Old SME, profitable, costs from 1 April 2023 | 86% additional deduction | Up to 21.5% where 25% Corporation Tax applies |
| Old SME, loss-making, costs from 1 April 2023 | 10% credit on surrenderable loss | Up to 18.6% |
| R&D-intensive loss-making SME | 14.5% credit on up to 186% enhanced expenditure | Up to 26.97% |
| Merged RDEC | 20% taxable credit | Commonly about 15% at 25% tax or 16.2% at 19%, with marginal-rate outcomes potentially lower |
The final benefit depends on the company’s tax position, qualifying expenditure, available losses and PAYE cap. Businesses can use the Corporation Tax calculator when modelling the wider effect on taxable profits and reliefs.
Does Your Company Count as an SME?
For R&D purposes, an SME generally has fewer than 500 staff and either turnover not exceeding €100 million or a balance sheet total not exceeding €86 million.
The calculation may include connected businesses. A partner enterprise can arise where another enterprise holds 25% or more of capital or voting rights, subject to exceptions.
A linked enterprise exists where one business can exercise control over another, including through majority voting rights or other control arrangements. Linked figures are generally aggregated in full, while partner figures are included proportionately.
This can affect startups with investors, group companies or significant corporate shareholders.
What Kinds of Projects Qualify?
A qualifying project must seek an advance in the overall field of science or technology, not merely an improvement new to the company.
It can involve creating something new, appreciably improving an existing product or process, or reproducing an existing effect through a genuinely new scientific or technological approach.
HMRC defines an appreciable improvement as changing scientific or technological characteristics until something is objectively better than the original. It must be genuine and non-trivial rather than a routine upgrade.
Commercial risk alone is not enough. The project must involve scientific or technological uncertainty that a competent professional could not readily resolve using available knowledge.
Why Is a Competent Professional Important?
A competent professional should have relevant knowledge and experience and be able to assess the baseline technology, intended advance and uncertainty.
A strong claim should identify the professional, explain their expertise and record why they believe the work goes beyond routine development.
HMRC’s project eligibility tool also requires competent-professional input for some questions.
What R&D Costs Can Be Claimed?
| Cost Category | Claimable? | Main Point |
| Staff salaries, employer NIC and pensions | Yes | Apportion to R&D activity |
| Externally provided workers | Yes | Conditions apply |
| Contractors or subcontracted R&D | Yes | Scheme and contract rules apply |
| Consumables | Yes | Must be used or transformed |
| Software | Yes | Apportion mixed use |
| Data and cloud computing | Yes | Qualifying categories from 1 April 2023 |
| Clinical trial volunteers | Yes | Where relevant |
| Capital expenditure | No | Other capital reliefs may apply |
| Rent, rates and patent or trademark costs | No | Not qualifying R&D revenue costs |
Certain indirect activities can qualify where they support R&D, including R&D-specific administration, recruiting and paying R&D staff, maintaining R&D equipment, directly supporting training and some feasibility studies. Ordinary commercial, marketing and legal activity remains outside the definition.
How Do Grants Affect R&D Tax Relief?
For accounting periods beginning before 1 April 2024, notified State aid and other subsidies can affect whether an SME claims under the old SME scheme or RDEC and how much expenditure qualifies.
For periods beginning on or after 1 April 2024, a grant or subsidy does not by itself prevent supported expenditure from qualifying under merged RDEC or ERIS. Other eligibility and contracting rules still apply.
Businesses comparing funding routes may also review government grants for new businesses, although individual grant terms should be checked carefully.
How Does Contracted-Out R&D Work?
For accounting periods beginning on or after 1 April 2024, the rules focus on which party intended or contemplated that qualifying R&D would be undertaken.
Where a customer commissions work and intended or contemplated the relevant R&D, the customer will generally be the claimant if the other conditions are met. A contractor may still claim for R&D it independently initiates where the customer did not intend or contemplate that R&D.
Unconnected contractor expenditure is generally restricted to 65% of the qualifying payment. Connected-party calculations use different rules, while overseas contractor or externally provided worker costs are usually restricted unless a statutory exception applies.
Is There a PAYE Cap on R&D Credits?
Yes. For merged RDEC and ERIS, the PAYE cap is generally £20,000 plus 300% of the company’s relevant PAYE and National Insurance liabilities. The fixed amount is proportionately reduced for accounting periods shorter than 12 months.
An exemption can apply where both statutory conditions are met. Broadly, the company must create, prepare to create or significantly manage relevant intellectual property mainly through its own employees, and qualifying connected subcontractor and externally provided worker expenditure must not exceed 15% of total qualifying R&D expenditure.
Under merged RDEC, excess above the cap can generally be carried forward. Under ERIS, a credit claim above the cap is invalid to that extent.
How Is an R&D Credit Actually Paid?
HMRC applies a statutory payment sequence rather than automatically paying the gross credit in cash.
| Stage | What Happens |
| 1 | Credit pays Corporation Tax for the current period |
| 2 | Remaining credit is compared with its post-notional-tax value |
| 3 | The PAYE/NIC restriction or PAYE cap is applied |
| 4 | Remaining credit pays Corporation Tax for other periods |
| 5 | Eligible amounts can be surrendered to another group company |
| 6 | Remaining credit pays other HMRC liabilities |
| 7 | Any final balance may be paid to the company if going-concern conditions are met |
The gross credit shown in a calculation may therefore differ from the cash received. Companies should reconcile the result with how they pay Corporation Tax and manage other HMRC liabilities.
How Do You Claim R&D Tax Relief in 2026?
| Step | Action |
| Project | Define the field, baseline, advance and uncertainty |
| Professional | Record the competent professional and expertise |
| Costs | Calculate only qualifying expenditure |
| Scheme | Select the correct relief based on the accounting period and company |
| Notification | Check whether HMRC claim notification is required |
| Additional Information Form | Submit it before, or earlier on the same day as, the Company Tax Return |
| Tax Return | Complete the CT600 and CT600L where required |
| Evidence | Retain technical records, calculations, contracts and time records |
First-time claimants and some companies that have not claimed recently must notify HMRC within the relevant claim-notification window, normally ending six months after the period of account. Missing a required notification can invalidate the claim.
The Additional Information Form is mandatory and must be provided before the Company Tax Return containing the claim, or earlier on the same day.
For a period of account lasting 18 months or less, the normal R&D claim deadline is 24 months from its final day.
What Has Changed for R&D Tax Relief in 2026?
HMRC’s merged RDEC and ERIS framework remains in place, but compliance support has expanded.
HMRC now provides an R&D project eligibility tool that gives its view on whether work involves qualifying R&D based on the answers supplied. Businesses are encouraged to save the result and the evidence used when answering the questions.
On 18 May 2026, HMRC introduced a targeted advance assurance pilot for eligible SMEs. It can provide assurance on up to two complex or high-risk areas, including project eligibility, overseas expenditure, contracted-out R&D and PAYE-cap exemption.
What Happens If an R&D Claim Is Wrong?
The company remains responsible for its tax return even when an adviser prepares the claim. HMRC can require repayment of overclaimed relief, charge interest and apply penalties where appropriate.
Businesses should be cautious of advisers promising large refunds before understanding the underlying technology or asking directors to approve claims they have not properly reviewed. HMRC provides a route for reporting poor R&D tax-relief service standards.
From 1 April 2026, HMRC also has stronger powers against tax advisers involved in deliberate tax non-compliance.
R&D activity may also connect with Patent Box, a separate Corporation Tax regime for qualifying patent-related profits. Businesses developing protectable technology should consider how R&D relief, intellectual property ownership and future commercialisation interact.
Official Sources for Further Reading
Two particularly useful technical references are HMRC’s Corporate Intangibles Research and Development Manual CIRD81900 and the government’s Guidelines on the Meaning of Research and Development for Tax Purposes.
These cover the meaning of advances, appreciable improvements, technological uncertainty, competent professionals and qualifying indirect activities.
Conclusion
Research and development tax relief remains valuable, but a 2026 claim requires more than identifying innovation costs.
Companies must choose the right scheme, show a genuine scientific or technological advance, document competent-professional judgement, apply cost and contracting rules correctly and meet HMRC’s notification and information requirements.
Good records should be built while the project is running rather than reconstructed after year end. Where eligibility is uncertain, HMRC’s project tool or advance assurance routes can help test the position before submission.
FAQs About Research and Development Tax Relief
Which R&D Tax Relief Scheme Applies in 2026?
For accounting periods beginning on or after 1 April 2024, companies generally use merged RDEC, while qualifying loss-making R&D-intensive SMEs may use ERIS. Earlier periods can still use the old SME or RDEC rules.
What Is the Merged RDEC Rate in 2026?
The headline rate is 20% of qualifying expenditure. The credit is taxable, so the effective benefit is lower and depends on the Corporation Tax treatment.
What Is the ERIS R&D Intensity Threshold?
For accounting periods beginning on or after 1 April 2024, qualifying R&D expenditure generally needs to represent at least 30% of relevant total expenditure. A one-year grace period can protect some companies that qualified previously.
Do Companies Need to Notify HMRC Before Claiming?
Some do, including many first-time claimants and certain companies without a qualifying recent claim. Missing a required notification deadline can invalidate the claim.
Is the Additional Information Form Mandatory?
Yes. It must be submitted before the Company Tax Return containing the claim, or earlier on the same day.
Can Overseas R&D Costs Still Be Claimed?
They are generally restricted under the post-April 2024 rules, although statutory exceptions can apply.
What Is the Deadline for Claiming R&D Tax Relief?
For a period of account of 18 months or less, the normal deadline is 24 months from the last day of that period. A separate six-month claim-notification deadline can apply where notification is required.
