R&D tax credits: how the merged scheme works and how to claim properly

R&D tax relief is a Corporation Tax relief for UK companies that spend money on projects that seek an advance in science or technology. Despite the name, it is not a refund for ordinary product work. This guide explains the schemes that apply from April 2024, the two forms HMRC requires, what HMRC has said about poor claims, and how to pick an adviser who will stand behind the figures.

What is the merged R&D scheme?

From accounting periods beginning on or after 1 April 2024 the old SME scheme and the old expenditure credit scheme were replaced by a merged R&D expenditure credit, usually shortened to RDEC. GOV.UK sets the rate under the merged scheme at 20% (different rates apply to ring-fenced trades). The credit is taxable as trading income, so what you keep is lower than the headline figure (merged scheme guidance).

The claimant must be a trading company chargeable to Corporation Tax with a project that meets the R&D definition. Some overseas spending is restricted, and costs that are payments to another connected company are excluded. Read the cost categories line by line with an adviser, because staffing, materials and software are the areas where claims most often drift outside the rules.

What is ERIS for R&D-intensive SMEs?

Enhanced R&D intensive support, known as ERIS, is a separate route for smaller companies that spend heavily on R&D and make a trading loss. GOV.UK says it gives an extra 86% deduction on top of the existing 100%, so 186% of qualifying costs in calculating the adjusted trading loss. A company that surrenders the loss can receive a payable credit of up to 14.5% of the surrenderable loss, and that credit is not liable to tax.

The test is R&D intensity. Relevant R&D expenditure must be at least 30% of total expenditure, including that of connected companies, though a company can also qualify if it met the condition in its last 12-month period and made a valid SME or ERIS claim on spending incurred on or after 1 April 2023. There is a further catch: without a trading loss before the additional deduction, there is no extra deduction and no payable credit. Profitable SMEs and those below the threshold can still claim under the merged RDEC scheme.

What forms must you file before claiming?

Two separate steps now sit in front of the Company Tax Return, and missing either can sink the claim. Neither is a formality that your bookkeeper can fill in from a template.

Claim notification

For accounting periods starting on or after 1 April 2023, you must notify HMRC if you are claiming for the first time or if your last claim was more than 3 years before the end of the notification period. The period ends 6 months after the end of the period of account, and GOV.UK says that if you miss it your R&D tax relief claim will be invalid. A company that has claimed within the previous 3 years generally does not need to notify, with exceptions such as HMRC having removed an earlier claim from a return (claim notification). Use the online form for it.

Additional information form

You need one additional information form for each accounting period you claim. It must be submitted before or on the same day as the Company Tax Return, and GOV.UK says a claim without it will not be accepted. If the return arrives first, HMRC will remove the R&D claim from it. The form also asks for contact details of every agent who advised, analysed costs, helped prepare technical assessments or completed forms or the return (additional information).

Why is HMRC worried about R&D claim quality?

In its July 2023 compliance report HMRC said that about half of claims examined by volume contained some non-compliance, although fraud indicators appeared in fewer than 10% of claims examined. The main finding was less dramatic and more useful: 25% of claims were fully disallowed because no qualifying R&D activity took place, 19% involved real R&D that was overclaimed, and 2% were an honest misreading of the legislation (HMRC's approach to R&D tax reliefs).

The same report found first-time claimants were weaker on compliance: 38% of their claimed value was non-compliant, against 22% for repeat claimants. It also noted that over 90% of claimants use an agent and that HMRC said some agents seek to abuse the reliefs, with action ranging from penalties to refusing to deal with an agent. The data is from 2020 to 2021 claims, before the 2024 reforms, so read it as the background to today's tighter forms rather than a measure of current claims.

HMRC's later annual reports put the estimated error and fraud rate at 6.4%, or £493 million, for 2023 to 2024, with SME scheme claims at 11.1% and RDEC at 3.2% (HMRC accountability report). Those figures relate to claims for 2023 to 2024, so they describe the period around the reforms rather than today.

How do you choose an R&D adviser instead of a claims company?

Because the additional information form puts the adviser's name in front of HMRC, who prepared the claim is no longer private. Your company is responsible for what is claimed on its return whichever firm drafted it. The practical test is whether the adviser would be comfortable explaining each cost line to an HMRC officer, and would still be there if an enquiry opened three years later.

Contingency-fee claims companies, who take a percentage of whatever HMRC pays and nothing if it pays nothing, are not unlawful. The risk lies in the incentive: the larger the claim, the larger the fee, and there is no cost to the firm for a borderline project. Neither HMRC nor the professional bodies, as far as we could find, publish a ban or a rule of thumb on percentages, so we do not give one. Ask the questions below and weigh the answers.

• Is the adviser a member of ICAEW, ACCA, CIMA, AAT, ATT or CIOT, and can you see them on that body's online register?
• Will they explain in writing which projects qualify, which do not, and why?
• Do they charge a fixed or time-based fee, or a percentage, and what happens to the fee if HMRC reduces the claim?
• Are they prepared to handle an HMRC enquiry, and is that cost included?
• Will they be named on the additional information form, and will they show you what they submit?
• Do they ask for technical detail from the people doing the work, or only for the payroll report?

How do you check an R&D adviser is properly regulated?

1. Ask for the firm's professional body and membership number.
2. Look up the firm or individual on the body's own public register rather than relying on a logo.
3. Check that the name and address on the register match your engagement letter.
4. Ask for professional indemnity insurance details and a written engagement letter that covers enquiries.

Many R&D claimants are young companies, so company formation and R&D planning often belong in one conversation. If your business is still choosing a structure, read about sole trader or limited company, then browse register-checked firms by city or read our guides.