R&D tax credits for SMEs: what you can claim in 2026

R&D tax credits used to be one of the most valuable reliefs a UK SME could claim. The rules have tightened significantly since 2023, and the scheme was overhauled in April 2024. Most businesses that used to claim still can, but the rates are lower and the compliance bar is much higher.

Here's where the scheme stands in 2026, in plain English.

The short version

• The old SME scheme and RDEC have been replaced by a single merged scheme for accounting periods starting on or after 1 April 2024.
• Loss-making, R&D-intensive SMEs (ERIS: Enhanced R&D Intensive Support) get a more generous rate.
• The claim notification and additional information form are now mandatory. Missing either means the claim is invalid.
• Effective benefit is roughly 15-20p per £1 of qualifying spend for most SMEs, or up to ~27p per £1 for loss-making R&D-intensive SMEs.

If someone offers you "up to 33p in the pound", they're quoting pre-2023 rates.

Who can claim

Any UK limited company that:

• Is subject to corporation tax.
• Has undertaken a project that meets HMRC's definition of R&D (see below).
• Has spent money on qualifying costs during the accounting period.

Sole traders and partnerships cannot claim R&D tax credits. This is a corporation tax relief.

What HMRC counts as R&D

The definition has not changed, but HMRC now polices it hard. To qualify, a project must:

1. Seek an advance in science or technology. Not in your business or your market. In the underlying field itself.
2. Involve resolving scientific or technological uncertainty that a competent professional in the field couldn't easily work out.
3. Be capable of being written up so another competent professional could see what the uncertainty was, what you tried, and what you learned.

Two common misunderstandings:

• Novelty to your business is not enough. If a competent professional could have solved it with public information, it doesn't qualify, even if it was new to you.
• Commercial innovation is not R&D. A new product feature, a new pricing model, or a new marketing approach isn't R&D unless it required genuine scientific or technological advance.

The word "science" excludes economics, social sciences, and pure mathematics. It includes software, engineering, chemistry, biology, physics, and adjacent applied fields.

What qualifies as spend

Broadly:

• Staff costs: salaries, employer NIC, and employer pension for staff directly working on the R&D project. Time-apportioned.
• Externally provided workers (EPWs): staff hired via an agency, at 65% of the cost.
• Subcontractors: 65% of the cost, if they're doing qualifying R&D work on your behalf (rules on connected/unconnected parties apply).
• Consumables: materials and utilities used up in the R&D process.
• Software and cloud costs: including cloud compute, data licences, and dev tools directly used on R&D.
• Data licences: added as qualifying since April 2023.

Not qualifying:

• Capital expenditure (that's separate under R&D capital allowances).
• Rent, general overheads, marketing, business development.
• Client-facing production work that just happens to use technology.

The new merged scheme (April 2024 onwards)

The merged scheme replaced the old SME and RDEC schemes for accounting periods starting on or after 1 April 2024. Key points:

• 20% "above-the-line" credit on qualifying R&D expenditure.
• Credit is taxable, so the net benefit after corporation tax is roughly 15p per £1 at the 25% main rate, or ~16.2p per £1 at the 19% small profits rate.
• Loss-making companies can surrender the credit for cash. The surrender rate leaves you with a net cash benefit of ~15% of qualifying spend.
• Subsidised R&D restriction removed: if your R&D is partly funded by a grant, you can still claim on the full qualifying cost (a big improvement on the old rules).

ERIS: Enhanced R&D Intensive Support

Loss-making SMEs where R&D spend is at least 30% of total expenditure qualify for ERIS, which is more generous:

• 86% additional deduction on qualifying R&D spend (so £1 of qualifying spend becomes £1.86 for corporation tax purposes).
• Surrender the loss for a 14.5% cash credit.
• Effective net cash benefit: ~27p per £1 of qualifying spend.

The threshold used to be 40%; it dropped to 30% for accounting periods starting on or after 1 April 2024.

ERIS is the closest thing to the old, generous SME scheme still available. If your R&D-heavy startup is loss-making, this is where to focus.

Compliance: what changed and what will kill your claim

Two big changes since 2023 have caught out a lot of businesses:

Claim Notification Form

If you haven't claimed R&D in any of the previous three accounting periods, or the last claim was more than 3 years ago, you must notify HMRC that you intend to claim within 6 months of the accounting period end. Miss it and the claim is invalid. Full stop.

Additional Information Form (AIF)

Since August 2023, every R&D claim (new or repeat) must be accompanied by an AIF submitted before or with the CT600. It requires:

• A description of the projects, the advance sought, and the uncertainty.
• Contact details of the senior person responsible for the R&D claim.
• Contact details of any agent who prepared the claim.
• A breakdown of qualifying expenditure by category.

No AIF = no claim, even if the CT600 is accepted.

Increased HMRC scrutiny

HMRC has doubled its R&D compliance team since 2022, and enquiry rates on claims are now the highest they've ever been. A poorly-written technical narrative is the fastest way to trigger an enquiry that costs more than the claim was worth.

Rough benefit calculation

For a profit-making SME on the merged scheme:

• £100,000 of qualifying spend.
• 20% credit = £20,000.
• Taxed at 25% = £15,000 net benefit.

For a loss-making R&D-intensive SME (ERIS):

• £100,000 of qualifying spend.
• 86% additional deduction = £186,000 total loss impact.
• Surrender at 14.5% = ~£27,000 cash back.

When it's worth claiming

Rough rule: if you have £30,000+ of genuinely qualifying spend in a period, a claim is worth the compliance effort. Below that, the specialist fees and time investment often eat most of the benefit.

Genuinely qualifying spend usually means at least one full-time technical person working on projects that meet HMRC's definition.

When it isn't

• You're a sole trader or partnership (ineligible).
• The "innovation" is commercial rather than scientific or technological.
• The R&D was fully funded by a customer contract.
• The technical uncertainty was minimal, or a competent professional could have solved it easily.
• You can't credibly write up the technical narrative to HMRC's standard.

If you're being cold-called by a firm claiming "you almost certainly have a claim worth thousands", be sceptical. That model has been under significant regulatory pressure since 2023.

Getting it right

R&D tax credit claims are worth doing well or not at all. We work with technical clients to scope claims properly, prepare the AIF, and defend the claim if HMRC asks questions. If you'd like to talk about whether you have a valid claim, get in touch.