From 1 April 2024, the UK government introduced a single, consolidated R&D tax relief framework, replacing the previous SME and RDEC schemes. The merged scheme is intended to simplify the rules, provide greater clarity for businesses of all sizes, and reduce the potential for error or misuse.

While most businesses will now fall under the merged scheme, an enhanced support rate remains available for R&D-intensive SMEs, where qualifying research and development costs represent a significant proportion of overall expenditure.

The introduction of the merged scheme represents a shift toward a more transparent and consistent approach, while maintaining targeted support for smaller, innovation-driven companies.

Under ERIS, companies benefit from an additional 86% tax deduction on R&D expenditure and a higher 14.5% payable credit resulting in a potential benefit of up to 27%. A one-year grace period applies for businesses that temporarily fall below the 30% threshold, helping to provide stability in financial planning and avoid uncertainty from moving in and out of the regime.

A project must advance knowledge or capability in the wider field of science or technology, not just within your company.

R&D guidelines:

1. Advance Must Be in the Overall Field – HMRC defines an R&D advance as an improvement in the overall knowledge or capability within a field of science or technology, and not merely the company’s own internal knowledge or capability.

2. It’s About the Aim, Not the Outcome – Even if the advance isn’t achieved or only partially realised, as long as the project sought an advance in the field, it still qualifies as R&D.

Examples of qualifying R&D work include developing new products, processes, or services, improving manufacturing efficiency, prototyping, creating innovative software, trialling new materials, or solving complex engineering challenges.

Examples by sector:

• Engineering: Creating precision systems or components that outperform current capabilities.

• Manufacturing: Improving production efficiency, reducing waste, or developing materials with enhanced strength or resistance.

• Biotech/Medical: Creating new diagnostic methods, treatments, or devices.

• Software: Developing algorithms or platforms that solve performance, integration, or scalability issues.

Qualifying costs:

Typical categories of qualifying expenditure include:

• Staff costs (including employer NIC and pension contributions).

• UK-based externally provided workers and certain subcontractor costs.

• Consumables and materials used in R&D, including light, heat, power and water.

• Software directly used in R&D.

• Cloud computing and data costs.

Qualifying R&D activities must aim to:

1. Advance science or technology beyond what is already publicly available.

2. Resolve scientific or technological uncertainty – situations where the outcome or method could not be easily deduced by a competent professional.
This can include:

• Designing and developing new products or processes.

• Significantly improving existing products, processes, or services through technological innovation.

• Conducting experiments and testing to overcome performance, efficiency, or scalability limitations.

• Developing new materials or adapting existing ones for improved functionality.

1. Notify HMRC using the Advanced Notification Form within 6 months of the year-end, unless you meet the exemption rules.

2. Identify qualifying projects – work that meets HMRC’s definition of R&D.

3. Gather qualifying costs in the correct categories.

4. Prepare a technical narrative showing the uncertainties, the advance sought, and the R&D undertaken.

5. Submit an Additional Information Form (AIF) to HMRC online.

6. Include the figures in your Company Tax Return (CT600).

7. Receive the benefit as a tax saving or cash credit.

Time limit: Claims must be made within two years of the end of the relevant accounting period.

Advance Notification Requirement

If you are claiming for the first time, or have not claimed in the past three years, you must submit an Advance Notification Form within six months of the end of the accounting period in question. Missing this deadline will prevent a claim for that period.

At MSC R&D, we work with businesses across all sectors to identify, document, and submit fully compliant R&D Tax Relief claims.

Our process is guided by:

• Expertise – Over 150 years of combined R&D tax experience, including 50 years of direct HMRC knowledge.

• Compliance – Every claim undergoes rigorous Quality Assurance, reviewed by former HMRC inspectors (including Gavin Bate, who co-wrote the R&D tax legislation).

• Security & Quality – ISO 9001 and ISO 27001 certified, ensuring data protection and process excellence.

• Efficiency – Our unique Blitz Day® process streamlines claim preparation, often requiring just one day on site, to deliver optimal and compliant results with minimal disruption to your business.

We take a consultative approach, ensuring that claims are maximised within HMRC guidelines and defensible if reviewed.

Patent Box

If you hold or license qualifying patents, you may also benefit from the Patent Box regime, which applies a reduced 10% Corporation Tax rate to profits from patented inventions. It can be used alongside R&D Tax Relief.