R&D Tax Relief in 2026: What’s Changed and What SMEs Must Do Now

If you run an innovative business and the phrase “R&D claim” still conjures up a tidy bit of paperwork at year-end, it’s time for a rethink. The rules have been rewritten almost every year since 2023, HMRC’s compliance teams have grown teeth, and the scheme your accountant talked you through three years ago probably no longer exists in the form you remember.

TL;DR

  • For accounting periods beginning on or after 1 April 2024, the old SME and RDEC schemes are replaced by a single merged R&D Expenditure Credit.
  • Loss-making, R&D-intensive SMEs can claim under Enhanced R&D Intensive Support (ERIS) — the intensity threshold is now 30% of total expenditure.
  • Every claim needs an Additional Information Form (AIF) submitted before the CT600, or HMRC will reject it.
  • HMRC has piloted advance assurance for certain claimants, and overall compliance scrutiny has sharpened significantly.
  • Weak documentation is now the single biggest reason claims fail — a “competent professional” must be able to justify the science or technology.

Why R&D relief feels harder than it used to

The short answer: because it is. Between 2020 and 2023, HMRC saw a sharp rise in dubious claims, with some advisers aggressively marketing the scheme to businesses that had no business claiming. Parliament’s response has been a sustained programme of reform.

You’ll have noticed the consequences if you’ve claimed recently. More questions. Longer processing times. Requests for evidence that would have been waved through in 2019. None of this means genuine innovators should stop claiming — far from it — but it does mean the bar for a defensible claim has risen.

The government’s stated aim is to keep relief flowing to real R&D while squeezing out spurious claims. Whether you feel that balance is right depends on which side of an enquiry letter you’re sitting on.

The merged scheme: one regime, two flavours

For accounting periods beginning on or after 1 April 2024, the old SME relief and the separate RDEC have been combined into a single merged R&D Expenditure Credit scheme. The mechanics borrow heavily from the old RDEC: you receive an “above the line” taxable credit on qualifying expenditure, which is then taxed at the prevailing corporation tax rate.

The headline credit rate under the merged scheme is 20% of qualifying R&D expenditure. After corporation tax, the net benefit for most profit-making companies works out to roughly 15p in the pound, though the exact figure depends on your CT rate.

What counts as qualifying expenditure?

The core categories haven’t changed dramatically. You can still claim staff costs, subcontractor costs (with new rules on who can claim them), externally provided workers, consumables, software, and certain data and cloud computing costs introduced in 2023. Overseas expenditure is now restricted in most cases, with narrow exceptions where the work genuinely cannot be done in the UK.

The subcontractor rules are where many businesses are tripping up. Under the merged scheme, it’s generally the company that decides to do the R&D and bears the risk that gets to claim — not the contractor carrying out the work. If you’re doing R&D for a customer who specified the project, you may have less to claim than you think.

ERIS: a lifeline for loss-making innovators

The government recognised that the merged scheme, taken on its own, would be less generous to early-stage, loss-making companies that burn cash on R&D long before they earn revenue. The answer is Enhanced R&D Intensive Support (ERIS).

ERIS sits alongside the merged scheme. To qualify, you must be an SME, you must be loss-making, and your qualifying R&D expenditure must be at least 30% of your total expenditure for the period. (The threshold was originally 40% when the regime launched, then reduced to 30% for accounting periods beginning on or after 1 April 2024.)

If you meet those tests, you can claim an enhanced deduction of 86% on qualifying R&D costs and surrender the resulting loss for a payable tax credit at 14.5%. In practical terms, that’s worth up to around 27p in the pound — a meaningful difference for a pre-revenue tech or biotech business.

The single most expensive mistake we see is a loss-making R&D-heavy company defaulting to the merged scheme when ERIS would have nearly doubled their cash benefit. Always test the intensity ratio first.

The trade-off is that ERIS is harder to evidence. HMRC scrutinises both the intensity calculation and the underlying R&D, and the rules on connected-company expenditure can shift the ratio in unexpected ways. This is not a calculation to do on the back of an envelope.

The Additional Information Form: no AIF, no claim

Since 8 August 2023, every R&D claim must be supported by an Additional Information Form submitted to HMRC before the Company Tax Return that contains the claim. If you file the CT600 first, or skip the AIF entirely, HMRC will remove the claim from your return. No appeal, no second chance for that submission window.

The AIF asks for:

  • Details of a named senior officer of the company taking responsibility for the claim;
  • Details of any agent who advised on the claim;
  • A breakdown of qualifying expenditure by category;
  • A description of the projects, the scientific or technological advance sought, the uncertainties, and how a competent professional addressed them;
  • The number of projects being claimed for, with project-level write-ups for a minimum number depending on total projects.

That last point matters. HMRC isn’t just looking for marketing-style descriptions of “innovative new product development”. They want to see the specific technical uncertainty, why it wasn’t readily deducible by a competent professional in the field, and what you actually did to resolve it. Vague write-ups are now a near-guaranteed enquiry trigger.

Advance assurance: comfort, with conditions

HMRC has continued to develop its advance assurance route, and in 2024 announced a targeted pilot offering greater certainty for certain claimants before they submit a claim. If granted, advance assurance means HMRC agrees in principle that your R&D activities qualify, giving you several years of clearance for subsequent claims provided nothing material changes.

It’s not available to everyone. The core eligibility is broadly: an SME, turnover under £2 million, fewer than 50 employees, and a first-time claimant (or close to it). For businesses that fit, it can be a genuinely useful way to de-risk an early claim and signal good faith to HMRC.

Advance assurance vs. claiming first and hoping

The traditional approach has been to make your claim, submit the AIF, and deal with any enquiry if it comes. That still works for many established claimants with strong documentation and a track record. The risk is that an enquiry can drag on for months, tie up management time and, in the worst case, lead to penalties if HMRC concludes the claim was carelessly or deliberately overstated.

Advance assurance flips the order: you have the conversation with HMRC up front, agree the scope, and then claim with confidence. It takes longer at the start, requires more preparation, and isn’t open to everyone — but for a first-time claimant in a technically complex sector, it can be the more sensible path.

HMRC compliance: what “increased scrutiny” actually looks like

HMRC has significantly expanded the team handling R&D enquiries, and the approach is more forensic than it was even two or three years ago. Routine enquiries now commonly include:

  • Requests for the CVs of the “competent professionals” who led the R&D;
  • Contemporaneous evidence — emails, design notes, lab books, commit histories, test results — showing the work actually happened in the period claimed;
  • Detailed questioning on why the advance sought wasn’t already publicly available knowledge;
  • Cross-checks against payroll, subcontractor invoices and project accounting records.

If you can’t produce that evidence on request, the claim can be reduced or removed entirely, with interest and potentially penalties. The honest message is this: if your R&D records consist of a year-end conversation with your accountant and some reconstructed estimates, you are exposed.

Practical steps to get your next claim right

Sound documentation is the single best investment you can make in your R&D claim. It’s also, frankly, the part most businesses neglect until an enquiry letter lands.

  • Identify a competent professional for each project — usually a senior engineer, scientist or developer with relevant qualifications and experience.
  • Write contemporaneous notes when you start a project: what advance are you seeking, what’s already known, what’s uncertain?
  • Track time against R&D projects through the year, not retrospectively in month 11.
  • Keep evidence of failed experiments and dead ends — these are often the strongest proof that genuine R&D took place.
  • Review subcontractor and overseas spend against the current rules before assuming it qualifies.
  • Test ERIS eligibility early in the year — by the time you file, it may be too late to influence the ratio.

None of this needs to be onerous. A shared folder, a simple project log and a 15-minute monthly check-in with your finance team will usually do the job. The point is to capture the story as it happens, not to reconstruct it under pressure.

What to do next

If you’ve claimed R&D relief in the past and haven’t reviewed your approach since the merged scheme came in, that’s the place to start. The mechanics of how your benefit is calculated have changed, the documentation expected has changed, and — for loss-making SMEs in particular — the right scheme to claim under may have changed too. A claim that worked in 2022 may now be both less valuable and more exposed than it should be.

If you’ve never claimed but think you might qualify, don’t be put off by the tighter regime. Genuine R&D still attracts meaningful relief, and the advance assurance route may give you a low-risk way in. The key is to start the documentation discipline now, before you need it, rather than scrambling at year-end.

We’d be glad to talk through where you stand. You can read more about how we approach R&D claims, browse our guide to claiming business expenses, or get in touch for a no-obligation conversation. This article is general information and not advice on your specific circumstances — every business is different, and the right answer depends on the detail.

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