R&D Tax Relief for Small Limited Companies: Do You Qualify?

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Last updated 23 October 2026. Written by the Limited Company Accountant UK team, part of Accotax. Figures are for the 2026/27 tax year; always check GOV.UK for the latest rates.

Short answer: R&D tax relief rewards UK companies that carry out research and development to resolve scientific or technological uncertainty. Since April 2024 most claims sit within a merged scheme that gives an above-the-line credit on qualifying costs, with enhanced support for loss-making, R&D-intensive companies. You claim through your CT600 with an additional information form.

Key facts

Scheme	Merged R&D expenditure credit (RDEC) plus enhanced support for R&D-intensive SMEs
Qualifying costs	Staff, software, consumables, some subcontractors
Claim made on	CT600 with additional information form
Time limit	Two years from the end of the accounting period
Who benefits	Software, engineering, biotech and manufacturing firms

What R&D tax relief is

Research and development tax relief is a government incentive that rewards companies for investing in innovation. If your company carries out qualifying R&D, it can claim a credit against its Corporation Tax bill, or in some cases receive a cash payment if it is making a loss. The relief exists because innovation carries risk, and the government wants to encourage UK businesses to take it.

Many small companies assume R&D relief is only for laboratories and large engineering firms. In reality, a surprising number of ordinary businesses qualify, including software developers, manufacturers, food producers and engineering consultancies. The test is not whether you are a scientist, but whether you tried to resolve a technical uncertainty that a competent professional could not readily solve.

The definition of qualifying R&D

For tax purposes, R&D is a project that seeks an advance in overall knowledge or capability in a field of science or technology, through the resolution of scientific or technological uncertainty. The advance must be in the field, not just new to your company. Routine work, such as adapting a known approach for a new customer, does not qualify, even if it is difficult.

A useful way to think about it is to ask what was uncertain at the start. If you could not know whether a solution was possible, or how to achieve it, and you had to experiment, prototype or test hypotheses to find out, the project may qualify. Keep records of the problem, the options you considered, and the results, because HMRC will ask for them.

How the merged scheme works

From accounting periods beginning on or after 1 April 2024, the older SME and RDEC schemes were combined into a single scheme that works through an above-the-line expenditure credit. The credit is a percentage of qualifying spend that is included in your profit, taxable, and then used to reduce your Corporation Tax bill or paid out as cash if you owe none.

For a profitable company, the net benefit is roughly 15p to 16p of every pound of qualifying cost after tax. Loss-making companies that are R&D-intensive, meaning R&D costs are at least 30% of total expenditure, can claim enhanced support that pays out more. The rates change from time to time, so always check GOV.UK before relying on a figure.

Which costs you can include

The relief covers costs directly connected to R&D. These include the salaries, employer National Insurance and pension contributions of staff working on the project, the cost of externally provided workers, software and cloud services used in R&D, consumable materials, and some payments to subcontractors, usually at a reduced percentage.

Costs of ordinary business operations, rent, marketing and capital items are not included, though capital allowances may be claimed separately. A director’s salary can be included for time spent on R&D, but you need a fair record of how much time that was, for example a timesheet or project log.

An example of a qualifying project

Imagine a two-person software company developing a new algorithm to compress data in a way no existing library can achieve. The founders spend six months on it, writing prototypes, testing and discarding approaches. Over the year, qualifying costs include £60,000 of salaries and £8,000 of cloud computing.

The company may claim an above-the-line credit on £68,000. After taxation of the credit, the net benefit might be about £10,000 to £11,000, depending on the rate in force. If the company is loss-making, the credit can be paid out in cash, which can be a lifeline for start-ups. The exact figure depends on the scheme rules for the period, so a specialist should calculate it.

How to make a claim

To claim, you include the credit on the company’s CT600 return and send an additional information form to HMRC before or when you file. First-time claimants must also tell HMRC in advance that they intend to claim, within six months of the end of the accounting period. You have two years from the end of the period to make or amend a claim.

HMRC checks R&D claims closely, and enquiries are common. A strong claim includes a clear description of the project, the uncertainty, the work done, and the costs. Keep your technical and financial records for at least six years.

Common mistakes and risks

The biggest mistake is claiming for work that does not meet the technical definition, such as routine software development or normal product improvements. Another is overstating staff time, or including costs that are not allowed. HMRC has pursued many such claims, and a failed claim means repaying the relief with interest and possibly a penalty.

Consultants who charge a percentage of the benefit can encourage over-claiming. If you use one, ask how they support the technical case and what happens if HMRC opens an enquiry. A fixed-fee accountant is often a safer partner.

Is R&D relief worth the effort?

For companies with genuine technical projects, the answer is usually yes. The benefit can offset a meaningful share of salary costs, and for loss-making start-ups it can provide a cash injection. The effort lies in recording the work, which is easier if you do it as you go.

If your work is more routine, you may find that other reliefs, such as capital allowances and the patent box, suit you better. Ask your accountant to review your projects before deciding, because an honest early assessment saves time and avoids the risk of a poor claim.

Industries where R&D claims are common

R&D claims come from a wider range of businesses than most owners expect. Software and app developers claim for building new functionality where the approach was uncertain. Engineering and manufacturing companies claim for developing new products, materials or production processes. Food and drink producers claim when developing new recipes that must meet shelf life, safety or process constraints. Agritech, medical device and clean energy companies also claim regularly.

Even companies in traditional sectors can qualify. A construction firm that develops a new method of insulating a listed building, or a printer that creates a new type of packaging, may have solved a technical problem that a competent professional could not easily solve. The key is whether a real uncertainty existed and whether you worked methodically to resolve it, which is something your own project notes will show.

Records that make a claim stronger

A good R&D claim is built from records you create as the project goes on, not reconstructed later. Keep project plans and design documents, meeting notes that record problems and decisions, version histories for software, test results including failed experiments, and timesheets or time estimates for staff. Failed experiments are especially valuable, because they show that the outcome was uncertain at the start.

Your accountant can use these records to prepare the narrative and the cost schedule that goes with the claim. Without them, even a genuine project can be difficult to defend if HMRC raises an enquiry, so a little discipline during the project pays off.

Frequently asked questions

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