HMRC R&D Tax Credit Changes Explained for 2026 | What You Need to Know

Are you wondering about the changes in R&D tax credit by HMRC? Well, HMRC Research and Development (R&D) tax relief has long been one of the most valuable incentives for innovative businesses in the UK. It has helped thousands of companies reduce their tax bills and reinvest in growth. However, since its introduction, there have been many HMRC R&D tax credit changes. These changes have been introduced to reduce fraud, improve compliance, and simplify the system.

This blog explains the reforms in R&D Tax Credit, how they help, their impact on UK companies, and how you can adapt your claims strategy.

How R&D Relief Worked Before April 2023?

R&D Relief is a UK government tax incentive designed to encourage businesses to invest in innovation.

The UK Government introduced major changes in R&D tax relief that took effect on 1 April 2023. Before the reform, the UK had two main R&D tax relief schemes:

1. SME R&D Tax Relief Scheme
2. Research and Development Expenditure Credit (RDEC)

Let’s understand both concepts before diving into the HMRC R&D tax credit changes.

SME R&D Tax Relief Scheme

Under the SME R&D tax relief scheme, you could claim an extra 130% deduction on top of the normal 100% deduction for qualifying R&D costs. This meant a total tax-deductible expenditure of 230% of the qualifying R&D spend. And, if you were not making a profit, you could exchange some of your tax losses for a cash payment from the government at a rate of 14.5%.

RDEC Scheme

For large companies and some SMEs, the RDEC rate was 13% of qualifying R&D expenditure. The credit was taxable, resulting in an effective net benefit of around 10.53% when corporation tax was 19%.

What Was the Reason for HMRC R&D Tax Credit Changes?

The UK government recognised that even though R&D tax relief successfully encouraged innovation, the system was vulnerable to fraudulent and inaccurate claims. HMRC detected a rise in abuse and errors, leading to significant losses in tax revenues.

To address these issues, the UK government introduced HMRC R&D tax relief changes. UK R&D tax credit changes focused on:

• Simplifying the structure of UK R&D tax relief
• Improving the quality of submissions.
• Minimise fraudulent claims.
• Ensuring taxpayer money supports genuine innovation.
• Enhancing the competitiveness in research and development in the UK.

These objectives of the UK government led to essential reforms affecting both SME and larger companies.

Key HMRC R&D Tax Credit Changes at a Glance

Reform	Effective Date
Additional Information Form	August 2023
Claim Notification Requirement	April 2023
Expanded Qualifying Costs	April 2023
Merged Scheme	April 2024
ERIS Scheme	April 2024
Overseas Cost Restrictions	April 2024

What are the HMRC R&D Scheme Updates?

HMRC introduced significant reforms from accounting periods beginning on or after 1 April 2024. The HMRC R&D Tax Credit Changes have replaced the legacy programs with two distinct paths. If your accounting period starts on or after 1 April 2024, you can claim under these two schemes:

1. The merged scheme
2. Enhanced R&D intensive support (ERIS)

Your classification depends on your financial performance and how much of your budget goes toward innovation.

SME Claim Before and After the Reform

One of the major HMRC R&D tax credit changes is how SME could claim R&D relief.

Before April 2024:

£100,000 qualifying expenditure

SME enhancement applied

After April 2024:

£100,000 expenditure

Merged scheme applies

Credit calculated under new rules

Overseas R&D Expenditure Restrictions

From April 2024, most overseas subcontractor costs and externally provided worker costs no longer qualify unless specific exemptions apply.

What is the Merged R&D Scheme?

One of the most significant HMRC R&D tax credit changes is the merger of the traditional SME R&D tax relief scheme and the merged R&D Expenditure Credit (RDEC) scheme. In April 2024, the UK government introduced the merged R&D expenditure Credit scheme as the RDEC scheme, the main R&D tax relief scheme for businesses of all sizes in the UK.

This new scheme combines the previous tax relief schemes (SME R&D tax relief and the RDEC scheme) into a single system. Now, most UK companies can claim R&D tax relief through the merged scheme. In addition to this scheme, the UK government introduced another scheme called Enhanced R&D Intensive Support (ERIS). This scheme provides additional support to SMEs that are in loss and involved in a high level of R&D activity.

Visit the official HMRC website and learn more about the HMRC R&D tax credit changes in detail.

Who Can Claim the Merged Scheme?

The new merged RDEC scheme is for the majority of companies. This means it applies to all companies regardless of their size. Whether you are an SME or a larger company, you can claim R&D tax relief through this new scheme.

You can claim the tax relief through the merged RDEC scheme if:

• You are trading
• You are chargeable to Corporation Tax
• You have a project that meets the definition of R&D

However, HMRC R&D tax credit changes prevent you from claiming tax relief for R&D expenditure that is incurred outside the UK. Also, the R&D expenditure credit is treated as business income in the UK, so you must pay Corporation Tax on it.

What are the Merged R&D Scheme Rates? How Is It Different from ERIS?

The table below outlines the updated rates of the new merged R&D scheme that applies for accounting periods beginning on or after 1 April 2024.

Scheme	Who does it apply to	Scheme Rates
Merged R&D RDEC	Most large and most SME companies	20% expenditure credit
Enhanced R&D Intensive Support (ERIS)	Loss-making and R&D intensive SMEs	86% enhanced deduction+14.5% payable credit

Disclaimer: This table is for general guidance. For professional tax advice, visit the official HMRC website.

What is Enhanced R&D Intensive Support?

HMRC R&D tax credit changes also include the enhanced R&D intensive support (ERIS). ERIS is for loss-making R&D intensive SMEs. This means if you are making a loss and spend a large proportion of your costs on R&D activities, you can use the ERIS scheme. Under this scheme, you can claim an additional 86% tax deduction on your qualifying R&D costs, giving a total deduction of 186%.

Eligible loss-making R&D-intensive SMEs may be able to claim an enhanced payable credit under the ERIS scheme. However, you cannot claim certain overseas expenditure under this scheme.

What are the Benefits of HMRC R&D Tax Credit Changes?

The UK government introduced the merged scheme to reduce fraudulent claims and improve the quality of submissions. Here are some key benefits of the HMRC R&D tax credit reforms:

• It offers greater simplicity for claimants.
• It improved consistency across business sectors in the UK.
• Easier administration for HMRC.
• Clearer guidance about qualifying R&D activities.

What are the Additional Information Form Requirements?

Another important part of the HMRC R&D tax credit changes is the requirement for many businesses to submit an Additional Information Form before claiming R&D tax relief. To complete this form, you will need the information of:

• Company details like your company’s Unique Taxpayer Reference (UTR), VAT registration number, employer PAYE reference number, and project descriptions, and qualifying expenditure breakdown.
• Your accounting period start and end dates
• Company details, like the main senior internal R&D contact and all agents involved in the R&D claim.
• R&D projects details.
• Scientific or technological advancements sought.

Remember, by providing this information, you improve claim quality and help HMRC assess applications more efficiently.

Are the Advance Notification Rules Also Included In HMRC R&D Tax Credit Changes?

Yes, the introduction of the advanced notification rules is another HMRC R&D Tax Credit reform. Generally, companies must submit a claim notification form if they are making their first R&D claim or have not claimed R&D relief during the previous three accounting periods. You need this form to notify HMRC of your intention to make an R&D tax relief claim.

Does the Merged Scheme Affect Subcontracting?

Yes, the merged scheme significantly impacts subcontracting. Under the merged scheme, subcontracted R&D is treated differently from the old SME scheme. Before the new scheme, SME could often claim even when R&D work was carried out by subcontractors, depending on the contract.

Under the new merged scheme, tax relief depends more on contractual responsibility for the R&D. This means the company that is expected to carry out the R&D under the contract can claim the relief. As a result, businesses now carefully review their contracts and R&D arrangements to see who can claim the tax correctly.

The Bottom Line

In the UK, HMRC R&D tax credit changes brought a significant shift in the approach to supporting innovation. Reforms like the merging of existing schemes have affected how businesses prepare and submit their claims.

The changes introduce additional responsibilities for UK businesses. They also create a more efficient and transparent framework for genuine innovators. You need to understand these rules and maintain accurate records to access valuable tax relief and invest confidently in R&D activities that drive growth.

R&D tax relief rules have become more complex following the recent reforms. If you are unsure whether your projects qualify, how subcontracting affects your claim, or which scheme applies to your business, speaking with an experienced R&D tax adviser can help maximise your claim while ensuring full HMRC compliance. Through our platform, AccountinfFirms, you can connect with experienced accountants who can review your subcontracting and eligibility and help you avoid errors.

Disclaimer: The information provided on AccountingFirms.co.uk is for informational purposes only and should not be considered as financial advice. Always consult with a professional accountant to ensure compliance with UK laws and regulations.