6 Mins
Written by: Beth Anderson
Manager, Corporate Tax
Last reviewed: 13 November 2026The UK’s R&D tax relief system changed significantly from 1 April 2024.
The previous SME and RDEC regimes have largely been replaced by the Merged R&D Scheme, creating a single framework for most companies claiming relief for research and development activities. While the changes were designed to simplify the system, they have also altered how claims are calculated and, in some cases, reduced the level of support available.
If your business invests in innovation, understanding how the new rules work is essential to ensure you’re still claiming the relief you’re entitled to.
Merged R&D Scheme at a Glance
| Effective from | Accounting periods beginning on or after 1 April 2024 |
| Main benefit | 20% taxable expenditure credit |
| Typical net benefit | Around 15% where corporation tax is paid at 25% |
| Available to | Most SMEs and large companies carrying out qualifying R&D |
| Replaces | The previous SME scheme and RDEC scheme for most businesses |
| Alternative regime | ERIS for qualifying loss-making R&D-intensive SMEs |
Key Takeaways
- Most companies now claim under the Merged R&D Scheme.
- Relief is provided as a 20% taxable expenditure credit.
- The effective benefit is often around 15% of qualifying expenditure.
- New rules affect contracted-out R&D projects.
- Overseas subcontractor costs are now restricted in most situations.
- Loss-making R&D-intensive SMEs may qualify for the separate Enhanced R&D Intensive Support (ERIS) regime.
What Is the Merged R&D Scheme?
The Merged R&D Scheme is now the UK’s main R&D tax relief regime.
Before April 2024, companies generally claimed under either the SME R&D Scheme or the Research and Development Expenditure Credit (RDEC) scheme. The Government replaced these with a single regime for most businesses, based largely on the former RDEC model.
The aim was to create a simpler and more consistent system while reducing errors and fraud in R&D tax relief claims.
Who Can Claim?
Companies may be able to claim if they are carrying out qualifying research and development activities that:
- Seek an advance in science or technology
- Attempt to overcome scientific or technological uncertainty
- Create or significantly improve products, processes or services
Many businesses assume R&D only applies to laboratories or scientific research. In practice, claims often arise in sectors such as:
- Software and technology
- Manufacturing
- Engineering
- Life sciences
- Construction
- Renewable energy
- Food and drink production
Unsure Whether Your Project Qualifies?
Many first-time claimants are surprised to discover they have eligible activities.
If your team has solved technical challenges, developed new processes, improved existing products or created innovative software, it’s worth reviewing whether those activities meet HMRC’s definition of R&D.
How Much Is R&D Tax Relief Worth?
Under the Merged Scheme, companies can claim:
20% of qualifying R&D expenditure as a taxable credit.
The amount retained depends on the company’s tax position. For a company paying corporation tax at 25%, the effective benefit is typically around:
15% of qualifying R&D expenditure.
For some businesses that previously claimed under the SME regime, this may result in a lower level of support than before.
One of the Biggest Changes: Contracted-Out R&D
The rules surrounding contracted-out research and development have changed significantly.
Under the new regime, entitlement will generally sit with the party that:
- Initiates the R&D
- Bears the financial risk
- Expects to benefit from the results
This is particularly important for software developers, manufacturers, engineering firms and technology businesses undertaking work for customers. A company that successfully claimed under the previous rules may not necessarily be entitled to relief under the new regime.
In many cases, understanding who can claim now requires careful analysis of contracts, project scope and ownership of intellectual property.
Can You Still Claim Overseas Development Costs?
In many cases, no.
For accounting periods beginning on or after 1 April 2024, expenditure on overseas subcontractors and externally provided workers is generally excluded from R&D tax relief calculations.
Limited exceptions do exist where it would be unreasonable to carry out the work within the UK because of geographical, environmental or regulatory requirements.
Businesses that rely on overseas development teams should review their claims carefully, as the impact can be significant.
What Costs Can Be Included?
Qualifying expenditure can include:
- Employee salaries
- Employer NIC
- Pension contributions
- Certain subcontractor costs
- Externally provided workers
- Software licences
- Data licences
- Cloud computing costs
- Consumable items used in R&D
The rules are detailed and not every cost will qualify, particularly under the revised subcontractor provisions.
What About Loss-Making SMEs?
Some loss-making businesses may be better off under the Enhanced R&D Intensive Support (ERIS) regime rather than the standard Merged Scheme.
ERIS is aimed at companies investing heavily in R&D and can be worth significantly more than the standard regime where the eligibility conditions are met.
Internal link: ERIS article
HMRC Compliance Requirements Have Increased
Alongside the new rules, HMRC has introduced additional compliance requirements for R&D claims, including:
- Additional Information Forms (AIFs)
- Digital submission requirements
- Greater disclosure requirements
- Increased compliance activity
- More scrutiny of technical narratives and supporting evidence
Businesses should maintain detailed records showing:
- The technological challenges faced
- The work undertaken
- The uncertainties encountered
- The costs being claimed
Strong record-keeping can reduce the risk of delays and HMRC enquiries.
Internal links here:
- Additional Information Form guide
- Advance Notification guide
- HMRC R&D enquiries article
How Henderson Loggie Can Help
The new regime has created uncertainty for many businesses, particularly around contracted-out R&D, overseas expenditure and eligibility under the revised rules.
Our specialist R&D tax team helps businesses:
- Identify qualifying projects
- Review contracted-out R&D arrangements
- Assess qualifying expenditure
- Prepare robust claims
- Respond to HMRC enquiries
Whether you’re making your first claim or reviewing how the new rules affect an existing claim strategy, we can help ensure you’re claiming the relief available to you.
Speak to Our R&D Specialists
If your business is investing in innovation, now is a good time to review how the new rules affect your position.
Get in touch with our R&D tax team to discuss your projects, understand your eligibility and ensure you’re making the most of the relief available.
Merged R&D Tax Relief Scheme FAQs
Yes. R&D tax relief remains available, but most companies now claim through the Merged R&D Scheme rather than the previous SME or RDEC regimes.
The Merged Scheme provides a taxable credit equal to 20% of qualifying R&D expenditure. For companies paying corporation tax at 25%, the effective benefit is usually around 15%.
Yes. Most SMEs now claim through the Merged Scheme, although qualifying loss-making businesses may instead be eligible for ERIS.
Contracted-out R&D is research and development carried out by one business on behalf of another. Under the new rules, eligibility generally depends on who initiates the project, bears the risk and benefits from the outcome.
Generally not. The legislation is designed to prevent multiple companies claiming relief on the same qualifying activity.
Usually no. Overseas subcontractors and externally provided workers are generally excluded unless a specific exemption applies.
