R&D tax relief for SMEs: qualifying costs, rates and claim process overview

Summary

Updated January 2026 — Sources: GOV.UK R&D tax relief, HMRC CIRD81900.

Research and Development (R&D) tax relief rewards UK companies investing in innovation. The scheme merged SME and RDEC routes from April 2024, simplifying claims for most businesses.

1. Qualifying criteria

Your project must seek an advance in overall knowledge or capability in a field of science or technology. The work must involve uncertainty that competent professionals cannot readily resolve. Qualifying costs include staff wages, subcontractor costs (65%), consumables, and software.

2. Merged scheme rates (from April 2024)

Position	Benefit
Profitable company	86% enhanced deduction reduces corporation tax
Loss-making SME	20% credit on surrenderable losses
R&D intensive SME	Enhanced 27% credit if R&D spend ≥ 30% of total

3. Example — £100,000 qualifying R&D spend

Enhanced deduction: £100,000 × 186% = £186,000 total deduction. At 19% CT rate, tax saving = £16,340. Loss-making companies may surrender losses for a payable credit.

4. Documentation requirements

• Project records showing technological uncertainty
• Staff time logs allocated to R&D activities
• Contemporaneous notes of experiments and failures
• Cost breakdown by qualifying category

5. Sources

• GOV.UK — R&D tax relief
• GOV.UK — RDEC rates