If you overlooked Research and Development (R&D) tax credits in the 2024/25 tax year, now is the time to act to ensure you don’t lose out in 2025/26.
The rules have changed, and if you don’t claim this year, you could be missing out.
From 1 April 2024, the new merged R&D expenditure credit (RDEC) scheme replaced the previous SME and large company schemes, bringing major changes to how relief is calculated.
Whether you’re a loss-making SME or a profit-making business, there’s still substantial support available – but you need to ensure you’re claiming under the right scheme.
The new R&D tax credit system: What’s changed?
The Government has simplified R&D tax relief by merging the old SME and RDEC schemes into a single expenditure credit system.
This means:
- The R&D expenditure credit (RDEC) rate is 20 per cent for qualifying expenditure.
- The credit is taxable, meaning it is treated as trading income and subject to Corporation Tax.
- If you are a loss-making SME, you may be eligible for the new Enhanced R&D Intensive Support (ERIS) scheme.
- The PAYE cap applies, limiting the amount of tax credit you can claim based on your payroll costs.
However, you will need to meet certain criteria to apply for and successfully capitalise on the merged scheme.
Qualifying R&D costs include:
- Staff costs – Salaries, pensions, and NICs for employees working on R&D
- Subcontractors and freelancers – A portion of outsourced R&D work
- Software and consumables – Cloud computing, testing materials, and energy costs
- Prototypes and testing – If they are necessary for the R&D process
As you can see, this is fairly broad and could allow you to receive relief covering a range of your R&D-related expenses.
What is Enhanced R&D Intensive Support (ERIS)?
If your company is loss-making and R&D-intensive, you may be eligible for additional support.
Under ERIS, you can:
- Deduct an additional 86 per cent of qualifying costs in your tax computation (on top of the standard 100 per cent deduction), making a total of 186 per cent relief.
- Claim a cash tax credit of up to 14.5 per cent of the surrenderable loss, which is not subject to tax.
However, you must meet the intensity condition, meaning at least 30 per cent of your total expenditure must be on qualifying R&D activities.
Do you qualify for R&D tax credits?
The definition of R&D remains broad, meaning your business might qualify even if you don’t realise it.
If you’ve been working on any of the following, you should consider making a claim:
- Developing new products, processes, or software
- Improving existing technologies or systems
- Overcoming technical or scientific uncertainties
- Carrying out feasibility studies or prototyping
- Automating or streamlining processes
If you’re unsure about whether you qualify, speak to an accountant or tax adviser at Moore Thompson for guidance.
The new tax year starts soon – don’t miss out
The tax year ends in April, and you can claim R&D relief for the last two accounting periods.
If you haven’t reviewed your eligibility or think you missed out last year, now is the time to act.
Many businesses assume their accountants have already claimed R&D tax relief for them – but this is a specialist area that requires technical knowledge and careful documentation, so few practices cover it as standard.
However, if you’re investing in innovation, overcoming technical challenges, or improving processes, you should be claiming R&D tax relief.
With the tax year-end fast approaching, don’t let another year slip by without capitalising on this valuable support.
Unsure if you qualify? Speak to our R&D tax specialists today and secure your claim before the deadline.