Research and development (R&D) tax credits offer a valuable opportunity for UK businesses to reduce tax bills or secure payable credits. They encourage innovation, helping companies of all sizes create new products, processes and services. According to HMRC, businesses claimed around £7.7bn in R&D support in 2021/22, reflecting the popularity of these tax incentives. Below, we provide an updated overview for the 2025/26 tax year, covering eligibility, qualifying activities, how to calculate claims and ways to make sure you maximise relief.
What are R&D tax credits?
R&D tax credits are a UK government incentive designed to reward companies that work on innovative projects in science or technology. These incentives apply to businesses that attempt to advance overall knowledge or capabilities in their sector. Any UK company liable for corporation tax can potentially claim. There are two schemes: one for small or medium-sized enterprises (SMEs) and one called the research and development expenditure credit (RDEC) for larger companies or SMEs not eligible under the SME scheme.
Rates of relief for 2025/26
For SMEs, the additional deduction rate is 86% on qualifying expenditure, and the credit rate is 10% if you surrender losses. That means if you spend £100,000 on qualifying R&D, you can deduct £186,000 from your profits (the original £100,000 plus an additional £86,000). If your company is loss-making, you may surrender the losses for a payable credit of 10% of the surrendered amount.
Businesses that spend 40% or more of their total expenditure on R&D can still benefit from a higher credit rate of 14.5%, subject to eligibility. This increased rate is intended to support R&D-intensive businesses.
Under the RDEC scheme, which mostly applies to large companies, the rate stands at 20%. If you make a claim under RDEC, you can offset this against your tax bill or sometimes receive a payment from HMRC.
Who qualifies for R&D relief?
Your company must be seeking a scientific or technical advancement. The project should aim to resolve a genuine uncertainty, rather than use familiar or routine methods. Qualifying projects can include:
• designing or developing new products, processes, or services
• enhancing existing products with significant improvement to function or performance
• creating prototypes or running clinical trials (where appropriate)
• investing in software, data and cloud computing costs that directly support R&D
• conducting trials, experiments or tests aimed at new or improved solutions.
If your project meets HMRC’s definition of R&D, your qualifying expenditures might include staff salaries, subcontractor costs, software and data licensing, and consumables like utilities.
Documentation requirements
Since the 2023 updates, HMRC has tightened its approach to R&D claims. You must keep clear records that detail your projects, staff time and related costs. We suggest:
• maintaining a project log with key objectives, activities and timelines
• recording the time your employees spend on R&D tasks
• storing copies of relevant invoices and receipts
• explaining the advances sought and the uncertainties tackled, to show the work was not routine.
You must also submit a formal claim with your corporation tax return, along with the required additional information form to HMRC.
Common errors to avoid
Many claims are delayed or reduced because businesses do not provide enough evidence. Some focus on general company activities rather than technical innovation, or they fail to separate R&D costs from other expenses. Others forget to align the project with HMRC’s guidelines on scientific or technological advancement.
How to calculate your claim
- Identify qualifying R&D projects: Confirm that the work sought an advance in science or technology.
- Gather relevant costs: Include costs for staff, external contractors, consumables and software used directly in your R&D activity.
- Apply the correct scheme: Check whether you qualify for the SME scheme or RDEC. If you do not meet SME criteria, or receive certain grants, you may need to claim under RDEC.
- Calculate any enhanced deduction: For SME claims in 2025/26, add 86% on top of the qualifying costs. For RDEC, use 20% of the R&D spend.
- Compute tax relief or credit: Deduct the enhanced figure from your profits, or choose to surrender losses for a payable credit if you are loss-making.
Maximising relief
To make the most of R&D tax credits, keep good records, plan your R&D activity and submit accurate claims. We help our clients identify hidden eligible costs, which are often overlooked. Detailed documentation provides clarity for HMRC and supports your case. By making sure you capture staff time, subcontractor fees and software costs that might be overlooked, you can secure a better claim.
We also encourage businesses to review other incentives, such as the annual investment allowance, which might work well alongside R&D relief. In some cases, this can improve your tax position even further.
Recent legislative changes
Over the past few years, the government has expanded R&D relief to cover more categories of expenditure, including cloud computing and data licensing. With new verification requirements, HMRC now asks for more detailed supporting evidence. Penalties have increased where claims are incorrect or unsupported, so thorough documentation is essential. Businesses should also note that from April 2023, the SME additional deduction and credit rates changed. Although these amendments are intended to reduce error and fraud, eligible businesses can still benefit if they meet the qualifying criteria.
Practical steps for businesses
- Register your intent: HMRC may require you to provide early notification of an R&D claim. The most up-to-date information is found on the HMRC website.
• Keep costs separate: Maintain clear records of the expenditure linked to R&D, so there is no confusion when you submit your claim.
• Track staff time: Use timesheets or project management software to show how much time employees spend on R&D projects.
• Seek professional advice: Our team at Alton & Co helps businesses determine if work is eligible, track qualifying costs and handle claims.
• File on time: Late claims can be disallowed, so keep an eye on deadlines.
How we can support you
We focus on providing a straightforward R&D tax credit service by:
• reviewing your projects to confirm they meet the HMRC definition
• calculating eligible costs to ensure your claim is accurate
• producing detailed reports to support your claim
• advising on record-keeping practices.
If you need more information, feel free to explore our approach at Alton & Co and get in touch with us directly.
We recommend taking these steps well before your year end to avoid a last-minute rush. Adequate planning can also help you manage cashflow, as you will have a clearer picture of potential tax savings.
Making the most of your claim
R&D tax credits remain a powerful incentive for 2025/26. By understanding the rules, keeping good records and correctly assessing your costs, you can gain significant tax savings or generate a useful payable credit. If you have projects that push boundaries in science or technology, it is worth investigating a claim. Ensure you follow HMRC’s guidelines, watch out for common errors and file accurate returns on time.
If you have questions or need personalised support, we will be glad to help.
Contact us to discover how we can save you time and money through a well-prepared R&D tax credit claim. Let us help you turn your research into real savings.