R&D Tax Relief
October 15, 2025

Understanding the Evolving R&D Tax Relief Landscape: What UK Businesses Need to Know

The UK’s Research & Development (R&D) tax relief scheme has been a cornerstone of innovation support for over two decades. Introduced for SMEs in 2000 and extended to large companies by 2002, the scheme rewards businesses striving to overcome scientific or technological uncertainties through genuine advancement in their fields.

To qualify, a company must be working on a project that seeks to achieve an advancement in science or technology, with uncertainties that competent professionals cannot readily resolve. These criteria, as outlined in HMRC’s Corporate Intangibles Research and Development Manual (CIRD81910), are supported by regular guidance updates from the Department for Science, Innovation and Technology. HMRC also provides a Guidance on Compliance, which offers clarity on the types of information, evidence, and detail businesses must provide to demonstrate that their projects meet the qualifying thresholds.

A Changing Landscape: New Schemes, New Scrutiny

Over the past 24 months there has been significant changes in the R&D landscape, in relation to changes in legislation, guidance and schemes. There have been some positive details, such as the support for UK entities qualifying for R&D tax relief for the AP 2023 equated to £7.5 billion. With some not so positive, such as the rate of fraud and error equating to roughly £601 million that HMRC estimates across both schemes

What Schemes Are Available?

Depending on the accounting period, businesses will fall under one of the following frameworks:

Accounting Periods Up to 31 March 2024

1. SME Scheme

This is available to business’ who have undertaken R&D activities independent of commercial obligation and meet the following ceiling tests (including consolidated global group accounts):

  • Fewer than 500 employees
  • Turnover under €100 million
  • Balance sheet total below €86 million

If a business aligns with the above and has qualifying R&D activities, it could potentially claim the SME scheme. The scheme is an above the line adjustment to a business’ taxable profits or losses.

2. RDEC Scheme (Research and Development Expenditure Credit)

Although, if a business exceeds the above thresholds or has a project funded either by state aid or a large entity, then they must claim via the RDEC (Research and Development Expenditure Credit) scheme. This differs to the SME scheme, as the scheme is a below the line adjustment, meaning the relief will be in the form of a credit, which is subsequently taxed upon. In addition, to restricting the possibility to claim subcontractors.

Accounting Periods on or After 1 April 2024 – Introduction of the Merged Scheme

The Merged Scheme simplifies and replaces the dual-structure approach. It retains many features of RDEC, such as being an above-the-line credit, but reintroduces the ability to claim subcontractor costs. This streamlined model aims to reduce confusion and improve consistency across the board.

Enhanced Support for R&D-Intensive SMEs

A vital addition is the Enhanced R&D Intensive Support (ERIS) for loss-making SMEs. To qualify, businesses must demonstrate that R&D accounts for:

  • At least 40% of total expenditure (for periods from 1 April 2023 to 31 March 2024), or
  • 30% from 1 April 2024 onwards.

Eligible companies under this enhanced route can benefit from more generous payable credit rates, up to nearly 27%.

A Summary of Benefits by Scheme

Please refer to the visual table below (see image) for a full comparison of benefits by company type, scheme, and accounting period. Highlights include:

  • Profitable SMEs (pre-April 2023): Up to 24.7% net benefit
  • Loss-making SMEs: Up to 33.4% repayable credit (pre-April 2023)
  • Post-April 2024 (Merged): 16.2% effective benefit
  • Loss-making R&D Intensive firms: Up to 26.97% under ERIS
R&D Tax Relief Scheme Summary

What Costs Are Eligible?

Across all schemes, businesses may include the following core cost categories in their claims:

  • Staffing: Salaries, employer NICs, pensions, bonuses
  • Consumables: R&D wastage of materials (organic waste must be removed), purchases transformed / consumed in the pursuit of overcoming technological or scientific uncertainty, prototyping, utilities associated with the R&D projects. VAT must be removed from these materials.
  • Software & Cloud Services: Licences and platforms directly supporting R&D activity
  • Externally Provided Workers (EPWs): If a business has a tertiary contract with an individual or agent, these can be provided, given they are not supplying the provision of a service and relate to the governance of the business itself, rather than their own volition. These must not be a limited entity and a specific individual.
  • Subcontractors: (Permissible under SME and Merged schemes only) for R&D project delivery

Compliance Is No Longer Optional

Due to rising fraud and misreporting, HMRC now approaches R&D claims with significantly increased rigour. Submissions must be detailed, accurate, and defensible. Non-compliant claims may result in financial penalties and retrospective investigations.

Streets Innovation: Your Trusted R&D Tax Partner

With decades of specialist experience, Streets Innovation has supported businesses across all sectors in navigating R&D tax relief successfully. From early-stage project scoping to defending claims during HMRC enquiries, our team combines deep technical expertise with strategic insight and a genuine commitment to our clients’ success.

If your business values compliance, clarity, and confidence, Streets Innovation is the partner of choice for your R&D journey.