Innovation is one thing, but it is still a combination of investment, persistence, and more paperwork. The UK’s R&D tax relief system has been a great facilitator for companies that are willing to take risks in science and technology.
But from the 1st of April 2024, the whole scenario has totally changed. The government’s long-planned overhaul has integrated two long-standing R&D schemes into one streamlined structure, thus increasing compliance while still rewarding true innovation. If your business has availed of R&D tax credits in the past, you will now have to reevaluate where you fit in this new system.
So, where do you find yourself in the year 2025? Let us dissect it.
A Simpler System in Theory
Before April 2024, there were two separate ways: The SME scheme for smaller firms and the RDEC scheme, are mostly used by big companies.
Now, those have been replaced by a single merged R&D scheme for accounting periods beginning on or after 1 April 2024.
The government aims to simplify the process, align relief levels, and reduce errors. In practice, though, simpler doesn’t always mean easier.
Many small and medium-sized businesses will notice differences in how relief is calculated and how much of their investment now qualifies.
What the New Relief Looks Like
Under the merged scheme:
- Profitable companies can typically expect a net benefit of around 15% of eligible R&D expenditure.
- Loss-making companies may see roughly 16.2%, depending on their Corporation Tax position.
That’s still valuable support, but it’s less generous than the former SME scheme.
For those who invest heavily in innovation, however, a new door remains open.
The R&D-Intensive Route A Lifeline for Innovators
One of the most notable changes is the R&D-intensive pathway.
It’s designed for loss-making SMEs that devote a large share of their spending to research and development, now defined as 30% or more of total expenditure (down from 40%). This adjustment brings more early-stage and high-tech firms into the fold, especially those in software, biotech, or engineering and can deliver significantly higher relief than the standard merged scheme.
Stricter on Where the Work Happens
From 2024 onward, HMRC has tightened the rules around overseas R&D costs.
Subcontracted work and externally provided workers (EPWs) based outside the UK will generally no longer qualify, unless you can show that:
- The required expertise or facilities don’t exist in the UK, or
- The work must take place abroad due to regulatory or environmental constraints.
In other words, companies need to show a UK-first approach.
If a substantial portion of your R&D is performed overseas, this rule could significantly alter your claim.
Compliance Is No Longer Optional
The message from HMRC is clear: detail matters.
Every claim now requires an Additional Information Form (AIF) submitted before your Corporation Tax return outlining:
- A technical summary of your R&D activities
- The categories of qualifying costs
- The identities of any agents or advisers involved.
Companies are personally responsible for the accuracy of their submissions, and HMRC has increased its review activity to clamp down on incorrect or exaggerated claims.
Strong documentation isn’t just a best practice anymore; it’s a legal safeguard.
Who Qualifies Under the 2025 Rules
The essence of the R&D tax relief has not altered: HMRC still gives a reward to the companies that are resolving technical issues and at the same time, knowledge in science or technology is being advanced, or else the problem is being stripped of its technical aspect. In case your company is:
- U.K.-registered paying Corporation Tax.
- Doing projects that are improvements in science and technology.
- Making eligible costs such as staff, consumables, prototypes, and eligible software.
Then you are probably one of the qualified taxpayers.
If you are in the following situations, it is time for you to check your eligibility:
- Your projects are routine, cosmetic, or commercially driven instead of being scientifically challenging
- A big share of your R&D is done outside the UK.
- Your financial year goes beyond April 1, 2024, and that means transitional rules may apply.
Your 2025 Eligibility Checklist
Define your R&D activities
- Unravel the technical or scientific challenge you resolved, explain why it was not simple, and describe how you came to a solution.
Map your costs accurately
- Take into account the qualifying costs like the wages of employees, materials, and subcontractors based in the UK.
- Exclude costs that no longer qualify under the new restrictions.
Know your accounting period
- The merged scheme applies only to accounting periods beginning on or after 1 April 2024.
- Earlier periods still fall under the legacy rules.
Check your R&D intensity
- If 30% or more of your total spend is R&D, you may qualify for the enhanced intensive route.
Keep comprehensive records
- Maintain time logs, technical notes, and cost summaries. HMRC increasingly requests evidence, even for past claims.
Work with reputable advisers like SKZ Accountants
- Choose specialists familiar with the post-2024 rules.
- Ultimately, you, not your consultant, are responsible for compliance.
Early Evidence from HMRC Data
The first post-reform statistics suggest a noticeable shift.
HMRC’s most recent data (covering 2023–24) shows a fall of around 26% in SME scheme claims, while claims under the large-company (RDEC-style) mechanism increased.
It’s a sign that smaller firms are still adjusting, not necessarily that innovation is slowing down; the bar for evidence has simply risen.
Why It Matters
The main purpose of these reforms was to enhance the targeting, transparency, and fraud prevention of R&D tax relief.
Simultaneously, they imply:
- Changes in cash flow: smaller or later refunds may be received by SMEs.
- More accurate planning: identifying eligible costs eliminates future disappointment.
- Increased compliance requirements: HMRC is looking for strong, well-supported claims.
- Real opportunity: companies investing deeply in innovation can still achieve substantial returns.
Making a Claim in 2025
To claim under the merged scheme:
- Complete and submit the Additional Information Form (AIF) before your Corporation Tax return.
- Technical explanations, along with a cost summary, must be included.
- The Corporation Tax return should be filed with the attached R&D claim.
- In case it is the first claim, notify HMRC within six months of the end of the accounting period.
At any time, HMRC may ask for the supporting documentation for the claim, so being precise and open upfront will enable you to avoid delays later on.
The Bottom Line
The 2024 R&D reforms didn’t remove support for innovation — they refined it.
In 2025, the companies that benefit most will be those that:
- Innovate genuinely,
- Keep impeccable records, and
- Understand the boundaries of the new regime.
If your organisation is pushing the limits of what’s technically possible, don’t step back; step forward with better preparation.
Because in the UK’s reformed R&D landscape, innovation still earns rewards, it just demands proof.
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