Research and Development tax relief is one of the most valuable tax incentives available to UK tech businesses. It can reduce your corporation tax bill significantly or, in some cases, result in a cash credit from HMRC.
But HMRC made major changes to the scheme in April 2024, consolidating two separate schemes into a single Merged R&D Scheme. Many UK tech founders either do not know the rules have changed or are unsure whether their work qualifies.
This guide explains how the Merged Scheme works in 2026, who qualifies, what you can claim, and what mistakes to avoid.
1. What Changed in April 2024?
Before April 2024, UK businesses could claim R&D relief under two separate schemes: the SME scheme and the Research and Development Expenditure Credit (RDEC) scheme for larger companies.
From April 2024, HMRC merged these into a single Merged R&D Scheme that applies to most UK companies. A separate, more generous scheme called the Enhanced R&D Intensive Support (ERIS) scheme remains available for qualifying loss-making SMEs that spend heavily on R&D.
If you have not reviewed your R&D claim since before April 2024, the rules that applied to your last claim may no longer apply.
2. How the Merged Scheme Works
Under the Merged Scheme, qualifying companies can claim an above-the-line tax credit called RDEC at a rate of 20% of qualifying R&D expenditure.
This credit is taxable, so the effective benefit after corporation tax is approximately 15 pence for every pound of qualifying R&D spend for a company paying tax at the 25% main rate. For companies in the small profits rate band of 19%, the effective benefit is slightly higher.
The credit is offset against your corporation tax liability. If the credit exceeds your liability, the excess can be refunded as a cash payment.
| Scheme | Who It Applies To | Rate | Effective Benefit (after tax) |
| Merged R&D Scheme (RDEC) | Most UK companies from April 2024 | 20% | Approx. 15% at 25% tax rate |
| ERIS | Loss-making R&D-intensive SMEs | 27% | Higher, depending on tax position |
3. What Qualifies as R&D?
HMRC defines R&D broadly, but there are specific criteria that must be met. The work must:
- Seek an advance in science or technology
- Involve technical or scientific uncertainty, meaning the outcome is not known in advance
- Go beyond what a competent professional in the field could easily work out
For tech companies, this commonly includes:
- Building new software tools, platforms, or algorithms that do not already exist
- Developing new data processing or machine learning techniques
- Solving integration or performance challenges that require genuine technical problem-solving
- Creating new hardware or embedded systems with novel functionality
Routine development work, bug fixes, and standard software updates do not qualify. The key test is whether your team was solving a problem where the answer was not already known.
4. What Costs Can You Claim?
Qualifying expenditure under the Merged Scheme includes:
- Staff costs: salaries, NIC contributions, and pension contributions for employees working on R&D
- Subcontractor costs: a proportion of payments to external contractors doing qualifying R&D work
- Software costs: software used directly in the R&D process
- Consumables: materials and utilities used up during R&D activities
- Clinical trial volunteer costs: applicable to life sciences businesses
From April 2024, HMRC also updated the rules on overseas costs. In most cases, qualifying overseas expenditure is restricted unless there is a specific geographical or regulatory reason the work had to be done outside the UK.
5. The ERIS Scheme: For Loss-Making R&D-Intensive SMEs
If your business is loss-making and spends more than 30% of its total expenditure on qualifying R&D, you may qualify for the Enhanced R&D Intensive Support scheme rather than the standard Merged Scheme.
Under ERIS, the credit rate is 27%, giving a higher effective benefit for businesses at this stage.
This is particularly relevant for early-stage tech startups that are investing heavily in product development before reaching profitability. If you have not assessed whether you meet the intensity threshold, it is worth doing so before filing.
6. Common Mistakes UK Tech Companies Make
- Not claiming at all: Many UK tech founders assume their work does not qualify because it is software rather than traditional laboratory research. Software development can absolutely qualify.
- Under-claiming: Companies often miss staff costs for employees who spend part of their time on R&D but are not listed as R&D staff.
- Poor documentation: HMRC increasingly scrutinises R&D claims. Without clear records of the technical uncertainty, the work done, and the costs involved, a claim can be challenged or rejected.
- Filing under the wrong scheme: If your company changed size or structure since April 2024, you may have moved between scheme eligibility without realising it.
- Missing the deadline: R&D claims must be made within two years of the end of the accounting period in which the expenditure was incurred.
7. The HMRC Advance Assurance Process
If you are making an R&D claim for the first time and your expected claim is below 500,000, HMRC offers an Advance Assurance process. This allows you to confirm whether your claim is likely to be accepted before you file.
It is not mandatory, but it provides certainty and can reduce the risk of an enquiry later. For first-time claimants, it is worth considering.
8. How to Prepare a Strong Claim
A credible R&D claim requires four things:
- A clear description of the technical advance being sought and why it was uncertain
- A record of the specific work carried out to resolve that uncertainty
- An accurate breakdown of qualifying costs, including staff time apportionment
- Supporting documentation that connects the costs to the qualifying R&D activity
HMRC has increased the volume of R&D enquiries significantly since 2023. A well-documented claim is the best protection against delays, questions, or reductions to your credit.
Final Thoughts
If your business is building something new, solving a genuine technical problem, or developing software that did not exist before, there is a good chance some of that work qualifies for R&D tax relief.
The Merged Scheme is now the default for most UK companies. If you have not reviewed your eligibility since April 2024, now is the time to do it.
A missed R&D claim is money left with HMRC that should have come back to your business.
Want to Find Out What Your Business Can Claim?
Book a free consultation with our UK tax specialists at SustainEdge Global.
We will review your activities, identify qualifying expenditure, and help you build a fully documented R&D claim.
Book your free consultation today: https://sustainedgeglobal.com/uk/contact-us/
