The merged R&D scheme: what changed, and what a defensible claim needs

For accounting periods beginning on or after 1 April 2024, the old SME relief and the RDEC scheme were replaced by a single merged scheme, with a separate route, Enhanced R&D Intensive Support (ERIS), for loss-making SMEs that spend heavily on research and development. The administration changed at the same time, and HMRC’s approach to checking claims has changed most of all. This note sets out what a claim for a current period involves and what makes it defensible.

Which rules apply to your period

The merged scheme applies to accounting periods that begin on or after 1 April 2024. A company with a 31 March year end came in on 1 April 2024. A company with a 31 December year end came in for the year beginning 1 January 2025. A period that began before that date is still under the old rules.

Under the merged scheme the relief is an expenditure credit, modelled on the old RDEC. It is recognised in the accounts as income, it is taxable, and it either reduces the corporation tax bill or, subject to a cap linked to the company’s PAYE and NIC, is paid in cash. Because the credit is taxable, the net benefit is lower than the headline rate.

ERIS is the exception for loss-making SMEs whose qualifying R&D spend is at least 30% of their total expenditure. It keeps the shape of the old SME relief: an enhanced deduction and a payable credit on the surrendered loss. A company that met the intensity condition in the previous period has a one-year grace period if it dips below the line.

The two administrative gates

Two requirements sit in front of every claim. Miss either and there is no claim, whatever the merits of the work.

Claim notification. A company that has not claimed R&D relief in the previous three years must tell HMRC that it intends to claim, within six months of the end of the accounting period. The window closes long before the CT600 is due.

The Additional Information Form. Every claim needs an Additional Information Form submitted before the CT600 that contains it. The form asks for project descriptions written against HMRC’s own questions: the field of science or technology, the baseline at the start, the advance sought, the uncertainties faced and how they were addressed. It asks for qualifying costs by category, and for the name of the senior officer at the company responsible for the claim and of any agent involved. If the form is missing, HMRC removes the claim from the return. We diarise both steps against the period end as part of our Additional Information Form and pre-notification work.

Contracted-out R&D and overseas costs

Two of the larger changes in the merged scheme concern who can claim and where the work is done.

Contracted-out R&D. Where one company pays another to carry out work, the merged scheme asks who decided that R&D was needed and who carried the risk. If the customer intended or contemplated that R&D would be done as part of the contract, the customer claims. If the contractor took on ordinary work and found it needed R&D of its own to deliver, the contractor claims. Contracts written before 2024 rarely address the point, so the specification, the tender and the correspondence are what settle it.

Overseas expenditure. Payments to subcontractors qualify only where the R&D is carried out in the UK, and externally provided workers qualify only where they are paid through UK PAYE. There is a narrow exception where the conditions the work needs, such as geography, climate, population or regulation, do not exist in the UK and it would be wholly unreasonable to replicate them. Cost, and the availability of staff, are not accepted reasons. A company with an offshore development team should model the claim on UK costs alone before deciding whether it is worth making.

The old rule that pushed grant-funded projects out of the SME relief does not apply under the merged scheme, but how a grant is recorded and what it funded still affects the figures.

What HMRC is doing

HMRC has moved from checking a small sample of claims to opening enquiries into a large share of them, with standard letters that ask for evidence rather than explanation. The claims that fail tend to share features: a narrative written by an adviser who never met the technical staff; projects that describe commercial novelty rather than technological uncertainty; staff time allocated by a round percentage with nothing behind it; and costs that do not reconcile to the accounts. Where an earlier claim was overstated, HMRC’s R&D disclosure facility lets a company correct it before an enquiry starts, which is nearly always better than after. Our R&D enquiry defence work begins with an honest read of which of those features the claim has.

What a defensible claim looks like now

• A competent professional in the field, employed by the company, who can explain in their own words why the outcome was uncertain and what was tried.
• Contemporaneous records: tickets, test logs, design iterations, dated notes. A narrative reconstructed a year later from memory reads like one.
• Time records for staff, or at least a documented basis for the apportionment, agreed with the people concerned.
• A cost schedule that reconciles to the trial balance, category by category: staff, externally provided workers, subcontractors, consumables, software, data licences and cloud computing.
• Contracts reviewed against the contracted-out rules before the claim is prepared, not after HMRC asks.
• The claim notification and the Additional Information Form both diarised against the period end.

None of this needs a large company. It needs the evidence to exist before the year end, which is why we prefer to start during the period. Full preparation under the merged scheme starts with an eligibility assessment, and we say so if the work does not qualify.

If someone else has prepared the claim

The senior officer named on the form is the person HMRC writes to. If you have been sent a claim to sign, read the project descriptions and ask whether your technical lead would recognise them. If not, an independent second opinion before submission costs a fraction of an enquiry afterwards.

If you have a claim in preparation, a claim you have been asked to sign, or a letter from HMRC about an earlier one, we offer a 30-minute call at no charge to look at where it stands.