R&D tax credits give UK tech startups a way to turn the money they spend on building new software, hardware and processes into either a cash payment or a lower Corporation Tax bill. If your company is trying to solve a genuine technical problem, and paying developers, engineers or data scientists to do it, there is a good chance some of that cost qualifies. The rules changed significantly for accounting periods starting on or after 1 April 2024, so a lot of the advice still floating around online is out of date. This guide sets out what the relief is worth now, who can claim, and how to avoid the mistakes that get claims rejected.
What R&D tax relief actually is
Research and Development (R&D) tax relief is a government incentive run by HMRC. It rewards companies that carry out qualifying R&D by reducing their tax or paying out a credit. The point is to make it cheaper for British businesses to take on technical risk, which is exactly what most early-stage tech companies do every day.
Until recently there were two separate schemes: the SME scheme for smaller companies and the R&D Expenditure Credit (RDEC) for larger ones. For accounting periods beginning on or after 1 April 2024 these have been combined into a single merged scheme, built on the old RDEC model. Alongside it sits a more generous route called Enhanced R&D Intensive Support (ERIS), aimed at loss-making startups that spend heavily on R&D.
How much you can claim under the merged scheme
The merged scheme gives an “above the line” expenditure credit worth 20% of your qualifying R&D spend. That credit is itself taxable, so the real benefit after Corporation Tax lands at roughly 15% for companies paying the 25% main rate, or about 16.2% for those on the 19% small profits rate.
A worked example makes it clearer. Say your startup spends £200,000 on qualifying R&D in a year. The 20% credit is £40,000. After Corporation Tax is applied to that credit, the net benefit is in the region of £30,000. For a loss-making company, the credit can be paid out in cash rather than set against a bill, subject to a cap based on your PAYE and National Insurance costs.
ERIS: the better deal for R&D-intensive startups
Many pre-revenue tech startups burn cash on development long before they turn a profit, and the government created ERIS for exactly this group. To use it your company must be a loss-making SME and be “R&D intensive”, meaning qualifying R&D makes up at least 30% of your total expenditure. That threshold dropped from 40% for accounting periods starting on or after 1 April 2024, which brought more companies into scope.
Under ERIS you get an enhanced deduction of 86%, so £100 of qualifying spend becomes a £186 deduction, and you can surrender the resulting loss for a payable credit at 14.5%. In practice that is worth up to around 27p for every £1 of qualifying R&D, paid as cash. For a startup with little or no Corporation Tax to offset, that cash is often the more valuable outcome.
Does your project qualify?
This is where most claims succeed or fail. Qualifying R&D is not the same as ordinary product work. To count, a project must seek an advance in science or technology by resolving scientific or technological uncertainty that a competent professional in the field could not easily work out.
For a tech company that usually means work such as:
- Building a novel architecture or algorithm where the outcome is genuinely uncertain
- Integrating systems in a way that has not been done before and carries real technical risk
- Achieving performance, scale or security that off-the-shelf tools cannot deliver
- Developing new data models or machine learning approaches where the method is not established
Routine work does not qualify. Configuring existing software, standard web or app development, cosmetic changes and simply applying known techniques are all excluded, even if they are hard work. The test is technical uncertainty, not commercial novelty, so a first-of-its-kind product built entirely with established methods may not qualify while an unglamorous back-end problem might.
What costs you can include
Once you have a qualifying project, you can claim a defined set of costs tied to it:
- Staff costs: salaries, employer National Insurance and pension contributions for the people doing the R&D, apportioned to the time they spend on it
- Externally provided workers and subcontractors, subject to restrictions
- Consumables used up in the R&D, including materials, and a share of power, water and fuel
- Software licences, and since April 2023, data licences and cloud computing costs used directly for R&D
One important change under the merged scheme: for accounting periods from 1 April 2024, subcontractor and externally provided worker costs generally have to relate to work carried out in the UK. Overseas costs are only allowed in limited circumstances, such as where the conditions for the work genuinely cannot be replicated here. If you outsource development abroad, this is worth checking before you budget for a claim.
The paperwork HMRC now demands
HMRC has tightened its process considerably after a spike in dubious claims, so getting the admin right matters as much as the numbers. Two requirements catch startups out:
First, the claim notification. For accounting periods beginning on or after 1 April 2023, if you are a first-time claimant, or you have not claimed in the previous three years, you must tell HMRC you intend to claim within six months of the end of the accounting period. Miss that window and you lose the right to claim for that year entirely.
Second, the Additional Information Form. Since 8 August 2023 every claim must be supported by this form before or at the point you submit, setting out your qualifying projects, a breakdown of costs, the competent professional involved and your agent’s details. A claim filed without it will not be valid.
You have up to two years from the end of an accounting period to make a claim, but the notification deadline can bite long before that, so plan early rather than leaving it to your year-end accounts.
How to make a strong claim
Keep contemporaneous records of what you were trying to achieve, the uncertainties you faced and how you tackled them, ideally written by the technical people doing the work rather than reconstructed months later. Track developer time against projects so your cost apportionment stands up to scrutiny. If you use an adviser, choose one who will name themselves on the form and stand behind the claim, and be wary of contingent-fee firms that promise large refunds with little evidence. HMRC opens enquiries far more often than it used to, and a well-documented, honestly scoped claim is the best protection.
For the full official rules, work from HMRC’s own guidance at gov.uk, and read it alongside the wider funding and finance guides on the idea London homepage.
Frequently asked questions
Can a pre-revenue startup claim R&D tax credits?
Yes. Loss-making companies are among the biggest beneficiaries because they can take the relief as a cash credit rather than a reduction in tax. If you are R&D intensive and loss-making, ERIS can pay out up to around 27p per £1 of qualifying spend.
How much are R&D tax credits worth in 2026?
Under the merged scheme the credit is 20% of qualifying spend, worth roughly 15% to 16.2% net after Corporation Tax. Loss-making R&D-intensive SMEs claiming through ERIS can receive up to about 27% of qualifying spend as cash.
Do I need to tell HMRC before I claim?
If your accounting period began on or after 1 April 2023 and you are a new claimant, or have not claimed in the last three years, you must submit a claim notification within six months of the end of that period. You also need an Additional Information Form for every claim.
Does software development automatically qualify?
No. Standard app or web development does not qualify. The work must resolve genuine technical uncertainty that a competent professional could not readily solve. Novel architecture, algorithms or integrations are far more likely to count than routine build work.
How long do I have to make a claim?
You generally have two years from the end of the relevant accounting period. Be careful though: the six-month claim notification deadline for new claimants often falls much earlier, so check both dates as soon as your year ends.
Can I claim for developers based overseas?
For accounting periods from 1 April 2024, subcontractor and externally provided worker costs usually have to relate to UK-based work. Overseas costs qualify only in limited cases where the work genuinely cannot be done in the UK.