R&D tax credits: who qualifies and how to claim in the UK

Published Thursday 9 April 2026

Table of contents

• Understanding R&D tax credits
• How R&D tax credits work
• Who qualifies for R&D tax credits
• What projects qualify for R&D tax credits
• What costs qualify for R&D tax credits
• Benefits of claiming R&D tax credits
• How to claim R&D tax credits
• Changes to R&D tax credits in 2023
• Making R&D tax credits work for your business
• FAQs on research and development tax credits

Key takeaways

• Identify qualifying R&D activities that address scientific or technological uncertainty and seek to advance knowledge beyond what's currently available in your field, as these can generate significant tax savings of up to £46,500 on every £100,000 spent.
• Track all qualifying costs including staff salaries, consumable materials, software licenses, and subcontractor payments throughout your projects, as good record-keeping is essential for maximising your claim and simplifying the submission process.
• Submit the required Additional Information Form and claim notification to HMRC before filing your R&D tax credit claim, as these mandatory forms are needed to process any claim for accounting periods starting from April 2023.
• Claim R&D tax credits even for failed projects, as HMRC assesses whether you attempted to overcome uncertainty rather than whether you succeeded, meaning qualifying costs still count regardless of project outcomes.

Understanding R&D tax credits

R&D tax credits are UK government incentives that reduce your corporation tax bill or provide cash refunds for qualifying innovation work. These credits help you fund projects, reduce innovation costs, hire staff and grow your business.

To qualify, your project must meet these criteria:

• Focus on science or technology: Work in arts, humanities or social sciences doesn't qualify
• Relate to your trade: Connect to your existing business or a new trade you plan to start
• Seek an advance: Aim to create new knowledge or improve existing processes
• Address uncertainty: Solve problems that current knowledge can't easily resolve
• Present a real challenge: Tackle issues that aren't obvious to field experts

How R&D tax credits work

R&D tax relief lets you claim extra deductions on qualifying costs:

• Normal deduction: 100% of costs
• Additional relief:86% extra deduction from trading profit
• Total deduction: 186% of qualifying R&D spend

Example calculation: If you spend £100,000 on qualifying R&D:

• Total deduction: £186,000 (£100,000 + £86,000 additional relief)
• Tax saving at 25% corporation tax: £46,500

If your company makes a loss, you can claim a payable credit worth up to 10% of the surrenderable loss. This rises to 14.5% if your company meets the R&D intensity condition.

For accounting periods starting on or after 1 April 2023, you may need to tell HMRC in advance if you plan to claim. From 8 August 2023, you must also submit an additional information form before filing your claim.

Who qualifies for R&D tax credits

Most UK small businesses qualify under the SME scheme. Two R&D tax relief schemes exist based on company size.

SME scheme applies if your company meets all three thresholds:

• employs fewer than 500 people
• has turnover under €100 million
• has a balance sheet under €86 million

RDEC scheme applies to larger companies that exceed SME thresholds.

When determining your size, include figures from any partner or linked organisations working on the project.

If you don't meet those requirements, you're considered a large company and can claim research and development expenditure credit (RDEC). You can also claim RDEC if your small or medium-sized business is subcontracted to work on an R&D project by a large organisation. This applies when you're not eligible for the SME relief.

Linked and partner enterprises

When working out if you're an SME, include staff numbers and turnover or balance sheet totals from any linked or partner enterprises. A partner enterprise exists if another company holds 25% or more of your business's voting rights or capital. This helps you calculate your business size for eligibility.

What projects qualify for R&D tax credits

Qualifying R&D projects aim to achieve an advance in science or technology that benefits the wider field, not just your business. Your work must go beyond applying existing knowledge to solve a problem that experts in your industry would find genuinely challenging.

Projects that don't qualify

Not all innovation qualifies. You can't claim R&D tax credits for:

• work in arts, humanities or social sciences (including economics)
• routine improvements or cosmetic changes
• adopting existing technologies without modification
• projects where the solution is already publicly available

Scientific and technological uncertainty

Your project must address a scientific or technological uncertainty. If you're solving a problem that a professional in the field can't easily resolve, and the outcome is uncertain, your project is more likely to qualify.

What costs qualify for R&D tax credits

Qualifying R&D costs include expenses directly related to your innovation work. You can claim for:

• Staff costs: Salaries, wages, National Insurance and pension contributions for employees working on R&D
• Consumable materials: Items used up or transformed during R&D, such as chemicals, components or raw materials
• Software and cloud computing: Licenses and computing resources used directly for R&D purposes
• Subcontractors: Payments to third parties for R&D work, claimable at 65% of the cost
• Externally provided workers: Agency staff costs, also claimable at 65%
• Clinical trial volunteers: Payments to participants in qualifying trials
• Data and datasets: Costs of acquiring data used in R&D activities

Check the HMRC website for the complete list of qualifying expenditure.

Benefits of claiming R&D tax credits

R&D tax credits deliver direct financial benefits that support business growth. Claiming can help you:

• Reduce your tax bill: Lower corporation tax through enhanced deductions
• Boost cash flow: Receive cash refunds if your company makes a loss
• Fund further innovation: Reinvest savings into new projects or staff
• Offset development costs: Recover a portion of what you've already spent

Even if your R&D project fails, you can still claim for qualifying costs incurred.

How to claim R&D tax credits

Claiming R&D tax credits involves identifying qualifying activities, calculating your spend and submitting documentation to HMRC. Follow these steps to complete your claim.

1. Identify your qualifying R&D activities

Review your projects to identify which activities meet R&D criteria. For each qualifying project, document:

• the scientific or technological uncertainty you aimed to resolve
• how your work sought to advance knowledge in the field
• why the solution wasn't obvious to experts

See "What costs qualify for R&D tax credits" for eligible expenses to include in your claim.

2. Calculate your R&D spend

Calculate your enhanced expenditure by following these steps:

1. Total your qualifying R&D costs from the eligible categories
2. Reduce subcontractor and external worker payments to 65% of the original amount
3. Add the adjusted costs together to get your qualifying expenditure
4. Multiply the qualifying expenditure by 86% to find your additional deduction
5. Add the additional deduction to your original expenditure for your total enhanced deduction

This enhanced deduction reduces your taxable profit, lowering your corporation tax bill.

3. Submit your R&D claim to HMRC

Complete these mandatory steps before submitting your claim:

1. Submit a claim notification form to tell HMRC in advance (required for accounting periods starting on or after 1 April 2023)
2. Complete the Additional Information Form to support your claim (required from 8 August 2023)

HMRC requires these forms to process your claim.

Once complete, submit your R&D claim through your company tax return. Submit separate claims for each accounting period if your relief covers more than 12 months. You have two years from the end of each accounting period to claim.

Changes to R&D tax credits in 2023

R&D tax credits changed in 2023. Understanding these changes helps you submit accurate claims.

Changing rates of R&D tax relief

April 2023 rate changes reduced SME benefits but R&D tax credits remain valuable.

SME scheme changes:

• Profitable SMEs: Additional deduction reduced from 130% to 86%
• Loss-making SMEs: Cash credit reduced from 14.5% to 10%

Large companies: RDEC rates increased, making the scheme more beneficial.

Despite lower rates, SMEs can still claim significant tax savings. A £100,000 R&D spend now generates up to £21,500 in tax relief for profitable companies at the 25% corporation tax rate.

New rules for qualifying software expenditure

The UK government now allows you to claim for the costs of datasets and cloud computing. This is especially helpful if you work with artificial intelligence or machine learning.

You can now include the cost of creating, running and maintaining machine learning, acquiring datasets, and pure mathematics. From 1 April 2023, you can treat mathematical advances as science for research and development purposes, which is often part of software development.

New claim requirements

From 8 August 2023, all companies must complete an Additional Information Form (AIF) before claiming R&D tax relief.

The AIF requires:

• detailed financial breakdowns of your R&D spend
• technical descriptions of your development work and the uncertainties addressed

HMRC requires a completed AIF to process your claim.

Making R&D tax credits work for your business

Good record-keeping is essential for successful R&D tax credit claims. Track qualifying costs accurately throughout your projects to maximise your return and simplify the claims process.

Use accounting software to keep R&D expenses organised and ready for your claim. Get one month free and see how Xero helps you track qualifying costs, categorise R&D spend and generate reports for HMRC submissions. With clear financial records, you and your accountant can claim the relief you're entitled to and turn innovation into a financial asset.

FAQs on research and development tax credits

Here are answers to common questions about research and development tax credits.

What qualifies as R&D for tax credit purposes?

R&D qualifies if you're developing or improving products, processes or software while trying to resolve a scientific or technological uncertainty. This includes work where the outcome is uncertain and the solution isn't obvious to experts. You must also be advancing knowledge beyond what's currently available in your field.

Is the R&D tax credit worth claiming for small businesses?

Yes. Small businesses can claim significant tax savings or cash refunds through R&D tax credits. Even modest R&D spend of £50,000 could generate over £10,000 in tax relief, which you can reinvest in innovation, staff or growth.

Can I claim R&D tax credits for failed projects?

Yes. Failed projects qualify for R&D tax credits as long as you attempted to overcome a scientific or technological uncertainty. HMRC assesses whether you sought an advance, not whether you achieved one. The effort and costs incurred still count.

How long does it take to receive R&D tax credit payments?

HMRC typically processes R&D tax credit claims within 28 days for straightforward submissions. Complex claims or those requiring additional information may take longer. Accurate documentation and a completed Additional Information Form help avoid delays.