Research & Development (R&D) 

R&D (Research & Development) Tax Explained

The UK’s R&D tax relief rules changed significantly with the introduction of the merged R&D scheme for company accounting periods starting on or after 1 April 2024. Suppose your company innovates in software, AI, life sciences, engineering, manufacturing, games or other technical areas. In that case, these reforms will affect how you claim R&D tax relief, how benefits are calculated and the level of HMRC scrutiny you should expect.

This page combines our existing R&D guidance with the practical implications of the merged scheme so you can understand the changes, protect your claim, and get the maximum compliant benefit.

What is the merged R&D scheme?

HM Treasury consolidated the previous two-tier regime (SME R&D relief and the RDEC credit) into a single, above-the-line credit for qualifying R&D expenditure for accounting periods beginning on or after 1 April 2024. The merged scheme changes how relief is calculated and paid, but still aims to support innovation across UK industries and promote economic growth.

Key things to know

• The merged credit is modelled on an RDEC-style approach and is generally paid above the tax line.
• Claimants should expect increased technical assessment and HMRC enquiry activity. High–quality evidence and robust technical narratives are essential.
• Some treatments have changed (notably certain subcontractor and overseas cost rules), so previous claim approaches may no longer apply.

Who should read this page?

If your company:

• carries out technological or scientific research and development activities,
• operates in software, AI, life sciences, biotech, engineering, manufacturing, games or other innovation-led sectors, or
• has claimed SME or RDEC relief in the past,

then you need to understand how the merged scheme affects eligibility, documentation and cashflow.

What qualifies as R&D under the merged scheme?

Qualifying research and development activities must seek to advance knowledge or capability in science or technology and overcome scientific or technological uncertainty. Typical qualifying costs include:

• Staff costs (salaries, employer NICs, pension contributions) directly involved in development activities.
• Consumables and certain software used in the development process.
• Payments to eligible subcontractors and externally provided workers (note: overseas subcontractor treatment has been tightened).
• Fees paid for externally provided research services.

Record-keeping: timesheets, project plans, test logs, invoices, supplier contracts and development roadmaps are fundamental evidence for a compliant claim.

Practical implications of the reform

• Technical narratives matter more than ever. HMRC expects clear, specific descriptions of the uncertainty, approach, and how the work sought scientific or technological advance. Generic or boilerplate narratives are a common trigger for enquiries.
• Check overseas subcontractor spend. The new rules restrict relief for some overseas subcontracted work; don’t assume previous treatments still apply.
• Model the cash outcome. The merged credit may alter timing and tax treatment of the benefit – we can model the corporation tax relief and cashflow effects for your company.
• Transitional periods need care. Accounting periods that straddle 1 April 2024 require specific treatment; historic claims remain open to HMRC review.
• Increased compliance risk. Expect more detailed HMRC queries – well-documented claims reduce the risk of costly adjustments or repayments.

By understanding these changes and ensuring your projects meet the criteria, your business can remain competitive and maximise the value of its research and development spending under the new merged scheme.

How Plus Accounting helps – practical, specialist support

We work with growth companies across tech, AI, life sciences, games and engineering to prepare robust, HMRC-ready R&D claims:

Our R&D service includes

• Eligibility review & strategy: identify qualifying innovative projects, eligible cost categories including indirect costs, and the optimal claim approach to maximise your tax credits.
• Technical narrative drafting: prepare clear, tailored supporting narratives that explain the scientific or technological uncertainty and the steps taken to resolve it, demonstrating how your project seeks an advance in science or technology beyond current knowledge.
• Evidence capture & process design: implement time sheeting, cost-capture and documentation systems so your claim is audit-ready, ensuring all costs incurred are linked to qualifying research and development activities.
• Tax & cash modelling: forecast the corporation tax relief and cash benefit under the merged scheme to help with budgeting, investor reporting, and managing your company’s balance sheet.
• Claim submission & HMRC liaison: prepare the CT600 R&D sections; support you through any HMRC engagement or enquiry, ensuring compliance with the latest guidance for accounting periods beginning on or after 1 April 2024.
• R&D health checks: periodic reviews to ensure ongoing projects stay claim-ready and compliant, helping your limited company remain competitive by continually investing in new technologies and innovative projects.

We combine technical tax knowledge with sector experience, from AI start-ups and software houses to biotech and renewable engineering, so we speak both the language of innovative companies and the language of tax.

Real-world considerations and common pitfalls

• Boilerplate narratives — too generic and they invite HMRC follow-up, risking delays in receiving relief that supports your development process.
• Poor time allocation evidence — staff costs are often the most significant element of a claim; robust time sheeting is essential to substantiate your development spending.
• Misclassifying subcontractor spend — overseas subcontractor rules have changed, and failing to classify these costs correctly can affect your claim’s success.
• Failing to link costs to qualifying activities — every cost must be demonstrably connected to research and development activities that contribute to advancing existing products or creating new products.

FAQs

Who we work with

We support:

• AI and machine learning companies
• SaaS and software developers
• Video games and digital creative studios
• Life sciences, biotech and MedTech firms
• Engineering, manufacturing and cleantech businesses
• High-growth SMEs and scale-ups seeking investment or exit

Do you need an R&D review?

If you’re planning a claim under the merged R&D scheme or want to check whether existing projects still qualify, we can help. Our specialists will:

• review your pipeline,
• identify eligible costs incurred, and
• prepare a compliant technical narrative and cost submission.

Contact Stanley Fowler on 01273 701200 | Email: info@plusaccounting.co.uk

The merged R&D scheme keeps support for innovation at the heart of the tax system, but it also raises the bar on evidence and technical justification. Working with a specialist adviser who understands both the technology and the tax is now more important than ever. We combine sector knowledge, technical drafting and practical process design to make claims that stand up and help you keep the focus on building great products that deliver commercial success and contribute to the UK economy.

Further information