Research and Development (R&D) tax relief can reduce the cost of eligible scientific or technological innovation undertaken by UK companies. Businesses developing new products, improving processes, solving difficult software problems or overcoming technological uncertainty may qualify even when the R&D project itself is unsuccessful.
For accounting periods beginning on or after 1 April 2024, the system is centred on two forms of support, the merged R&D Expenditure Credit (RDEC) and Enhanced R&D Intensive Support (ERIS) for qualifying loss-making R&D-intensive SMEs. HMRC has also strengthened the information and notification requirements that companies must follow when submitting claims.
This guide explains the current rules in 2026, including qualifying projects and costs, contracted-out R&D, overseas expenditure, claim notification and the information businesses need to provide HMRC.
What Exactly Is Research and Development (R&D) Tax Relief?
R&D tax relief is a government-backed initiative that allows UK companies to reduce their Corporation Tax liability or receive a cash credit in return for investing in innovation. The relief applies to businesses undertaking projects that aim to achieve a scientific or technological advance, particularly when that progress involves overcoming uncertainty.
R&D tax relief was introduced in 2000 and has since undergone several reforms. For accounting periods beginning on or after 1 April 2024, the previous SME scheme and old RDEC scheme have been replaced by the merged R&D Expenditure Credit scheme and Enhanced R&D Intensive Support (ERIS).
Under the merged scheme:
- RDEC Rate: The expenditure credit is 20% of qualifying R&D expenditure for non-ring-fence trades
- Tax Treatment: The credit is taxable and is brought into account as trading income
- Eligibility: Companies undertaking qualifying R&D and chargeable to Corporation Tax can potentially claim, subject to the detailed rules
ERIS is available to qualifying loss-making R&D-intensive SMEs. For accounting periods beginning on or after 1 April 2024, the R&D intensity threshold is 30% of total relevant expenditure.
Eligible companies receive an additional 86% deduction, creating a total 186% deduction, with a payable tax credit rate of 14.5% of the surrenderable loss.
Only companies liable to UK Corporation Tax can claim, and the relief applies to a wide range of sectors beyond what is traditionally considered “scientific”.
How Does HMRC Define a Field of Science or Technology?
To qualify for relief, the project must aim to make an advance in a recognised field of science or technology. These definitions have been clarified and updated in HMRC guidance.
Science, in this context, refers to the systematic study of the nature and behaviour of the physical and material universe. From 1 April 2023, mathematical advances are also recognised as scientific contributions, whether or not they relate directly to the physical world.
Technology involves the practical application of scientific principles. It includes activities such as software engineering, mechanical design, chemical processing, and materials science.
The advance may:
- Have physical consequences (e.g., a better device or system)
- Increase the overall knowledge or capabilities in the sector
To be valid for relief, the outcome must be considered an appreciable improvement, not just a minor tweak. It must go beyond what a competent professional could easily deduce or achieve using existing tools or knowledge.
What Kinds of Projects Qualify for R&D Tax Relief?
HMRC specifies that the project must aim to create or contribute to an advance in the overall field, not just an improvement within your company. Even if another company has made a similar breakthrough, your project may still qualify if the knowledge is not publicly known or readily accessible.
Qualifying projects typically involve:
- Creating new materials, processes, products, or services
- Making significant improvements to existing ones
- Using scientific or technological methods to replicate a known effect in a new or improved way
For example, an agribusiness developing a waterless irrigation system to improve crop yield or a fintech firm creating a new algorithm for fraud detection based on live behavioural analysis could both be undertaking qualifying R&D.
However, the scope excludes projects aimed at making advances in:
- The arts
- Humanities
- Social sciences (including economics)
What Is Considered a Scientific or Technological Uncertainty?
Central to eligibility is the presence of a scientific or technological uncertainty. This exists when a competent professional working in the field cannot, based on available information or industry knowledge, determine whether something is possible or how to achieve it.
For instance, a company attempting to build a real-time speech recognition engine that works in noisy environments across multiple dialects may face uncertainties in performance optimisation, latency, and accuracy areas where no standard solution exists.
It’s not enough to undertake a project with commercial risk. There must be technological unknowns that require a methodical investigation. This is what distinguishes genuine R&D from routine development.
How Should a Business Demonstrate That It Attempted to Resolve Uncertainty?
To substantiate a claim, you must explain how your team tried to overcome the identified uncertainties.
HMRC expects a technical narrative that documents:
- What the advance was intended to achieve
- Why the outcome wasn’t readily achievable by a professional in the field
- What approaches were attempted (including those that failed)
- The logic behind the chosen methodologies or solutions
This doesn’t need to be complex, but should clearly show that a structured approach was used to explore unknowns. The narrative should also identify the roles and qualifications of individuals involved, reinforcing the credibility of the investigation.
What R&D Costs Can Businesses Claim for Tax Relief?
The list of qualifying costs is extensive but must relate directly to the R&D project. HMRC allows relief on both core and indirect supporting activities.
Key Cost Categories
| Category | Claimable? | Notes |
|---|---|---|
| Staff salaries, pensions, NIC | Yes | Proportional to time spent on R&D |
| Agency (EPW) staff costs | Yes | 65% of payment if unconnected |
| Subcontractor/contracted R&D | Yes | Conditions apply for connection and control |
| Consumables (materials, fuel) | Yes | Must be used up in the R&D |
| Software licences | Yes | Pro-rated if not used exclusively |
| Data and cloud computing | Yes | Allowed from 1 April 2023 |
| Clinical trial volunteers | Yes | Relevant in healthcare R&D |
| Capital expenditure | No | Separate relief may apply |
| Rent, rates, and IP costs | No | Not claimable under R&D relief |
The costs must fall within the duration of the project, beginning from when work starts to resolve uncertainty and ending when it is resolved or the effort ceases.
How Do Grants or Subsidies Affect R&D Tax Relief?
The treatment depends on when the relevant accounting period began.
For accounting periods beginning before 1 April 2024, the old SME and RDEC rules continue to apply. Under those rules, notified state aid and other subsidies could affect which scheme an SME used and how much expenditure could be claimed.
For accounting periods beginning on or after 1 April 2024, there is no restriction on claiming subsidised costs solely because the expenditure was supported by a grant or subsidy under either the merged scheme or ERIS.
This means businesses receiving funding such as innovation grants should not automatically assume that the funded expenditure is excluded. However, all other eligibility, qualifying expenditure and contracting rules must still be satisfied.
How Does Contracted-Out R&D Work Under the Current Rules?
For accounting periods beginning on or after 1 April 2024, the contracted-out R&D rules focus largely on which business decided or intended that the qualifying R&D should be undertaken.
Where a customer contracts work to another business and it is reasonable to assume from the contract and surrounding circumstances that the customer intended or contemplated that R&D of that sort would be undertaken, the customer will generally be the party entitled to claim, provided the other conditions are satisfied.
However, a contractor may potentially claim for R&D it independently initiates while delivering a contract where the customer did not intend or contemplate that R&D. There are also specific exceptions involving an “irrelievable client”, so the contractual arrangements and circumstances need to be reviewed carefully.
For eligible contractor expenditure:
- Unconnected Contractors: Generally 65% of the relevant qualifying payment can be included
- Connected Contractors: The claim is generally based on the lower of the qualifying payment or the contractor’s relevant qualifying expenditure
- Overseas Contractors: R&D activity performed outside the UK is generally restricted unless the statutory overseas exception applies
- Externally Provided Workers: Overseas expenditure can also be restricted where earnings are not subject to UK PAYE and NIC, unless an exception applies
HMRC’s current guidance confirms that overseas restrictions apply to both contractor and externally provided worker expenditure under the merged scheme and ERIS.
Businesses should therefore keep contracts, project specifications and other evidence showing who intended the R&D, what R&D was contemplated and where the work took place.
How Do You Claim R&D Tax Relief in the UK in 2026?
A company must claim R&D tax relief through its Company Tax Return, but additional HMRC requirements now apply.
Follow These Main Steps:
- Identify Qualifying Projects: Establish the scientific or technological advance and the uncertainties that competent professionals could not readily resolve
- Calculate Qualifying Expenditure: Include only eligible costs relating to qualifying R&D activities
- Choose The Correct Scheme: Use merged RDEC or ERIS where the accounting period begins on or after 1 April 2024
- Check Claim Notification: First-time claimants and some companies that have not recently claimed may need to notify HMRC within the claim notification period
- Submit The Additional Information Form: This must be submitted before, or on the same day as, the Company Tax Return containing the R&D claim
For businesses that need claim notification, the notification period generally ends six months after the end of the relevant period of account.
The Additional Information Form is mandatory for R&D claims and must be sent before the Company Tax Return, or earlier on the same day. HMRC can reject an R&D claim where the required form is not submitted correctly.
Businesses should maintain technical project records, competent professional evidence, cost calculations, employee time records and contractual documentation to support the figures and explanations supplied to HMRC.
What Has Changed for R&D Tax Relief in 2026?
The main merged RDEC and ERIS framework introduced for accounting periods beginning on or after April 2024 remains in place in 2026, but HMRC has introduced additional support designed to help businesses assess claims more accurately.
HMRC now provides an interactive R&D eligibility tool that businesses can use to assess whether individual projects involve qualifying R&D activities.
The tool asks businesses to consider issues such as technological advances, uncertainties and the involvement of competent professionals. HMRC recommends keeping the results and supporting evidence when preparing a claim.
A further development arrived on 18 May 2026, when HMRC introduced a targeted advance assurance pilot for eligible SMEs. The pilot, scheduled to run until May 2027, can provide assurance on specific complex or higher-risk areas before an R&D claim is submitted.
HMRC also continues to offer full claim advance assurance to eligible SMEs making their first R&D claim. Where granted, this can cover the company’s first three accounting periods.
For businesses claiming in 2026, accurate technical evidence, correct allocation of expenditure and compliance with HMRC’s notification and additional-information requirements are therefore increasingly important.
Conclusion
Research and Development tax relief remains an important incentive for UK companies investing in genuine scientific or technological innovation. However, making a successful claim in 2026 involves more than identifying innovative expenditure.
Businesses must determine whether the merged RDEC or ERIS applies, understand contracted-out and overseas R&D restrictions, meet any claim-notification requirement and submit the mandatory Additional Information Form correctly.
Keeping clear technical, financial and contractual evidence throughout an R&D project can make the eventual claim easier to prepare and defend. Companies uncertain about eligibility can also use HMRC’s R&D eligibility tool or, where eligible, seek advance assurance before submitting a claim.
