The R&D tax credit landscape has changed, and SMEs need to act fast. For accounting periods on or after 1 April 2024, the SME and RDEC schemes have merged.
So, what does this mean for you?
It means a brand-new scheme with updated claim processes, rates, and rules. Not only that, but new requirements, like the Claim Notification form, could impact your ability to claim.
With such a big shift imminent, it’s important to plan ahead and start asking yourself the questions: Will I get more or less back this year? And how can I still make the most of the scheme?
This guide breaks down the five practical steps your company can take to keep your claim compliant and to ensure you’ve optimised your return.
1. Know your eligibility: Standard vs. R&D-Intensive SME
In the new R&D landscape, not all SMEs are treated equally. Businesses that invest heavily in R&D can benefit from the Enhanced R&D-Intensive Support (ERIS), designed to reward innovation. If your R&D expenditure accounts for at least 30% of your total costs, you could qualify for ERIS and receive a credit of up to 27%.
What should you do next? Start by reviewing last year’s accounts to check if your R&D spending meets the 30% threshold. If you’re close, consider strategic steps like bringing forward planned R&D activities or reviewing eligible costs to help ensure you qualify.
Pro tip: Don’t assume ERIS is always the best option. For small, loss-making SMEs, it might only offer 12.5%, less than the 16.2% from the merged scheme. Sometimes, you can even combine both for a better return. The rules can be tricky, so it’s worth consulting an R&D advisor before proceeding.
2. Prepare for a lower net benefit
SMEs are getting less back under the new merged R&D scheme. Only a few years ago a loss-making SME could claim up to 33% relief, but by 2023 this had dropped to 18.6% (or 27% for R&D-intensive SMEs which at the time meant spending 40%+ of total costs on R&D). Now under the merged R&D scheme, the benefit is 14.7% to 16.2%, a big reduction.
For SMEs that relied on R&D tax relief for cash flow, this means less funding to reinvest in innovation. The PAYE/NIC cap still applies and overseas R&D restrictions could further reduce eligible costs.
What to do next?
- Update your financial forecasts – don’t get caught out by lower returns.
- Check your effective relief rate – if your claim size or financial position has changed, reassess which scheme is best for you.
- Consider other funding options – if R&D tax relief was a key part of your funding strategy explore grants or alternative finance solutions to bridge the gap.
3. Overseas R&D? Watch Out!
HMRC is tightening the rules on overseas R&D spending, and here’s what you need to know. Subcontracted R&D and Externally Provided Workers (EPWs) must now be UK-based to qualify, unless they meet specific exceptions.
If your innovation relies heavily on overseas talent, your R&D claim could shrink significantly this year. However, looking ahead, it might be worth reviewing your R&D supply chain. Could some of this work be relocated to the UK?
At the same time, take a close look at HMRC’s new exemption rules to see if any overseas work you’re conducting still qualifies. Planning ahead could make all the difference.
4. Don’t forget the Claim Notification rule
This isn’t just another admin task, it’s a hard deadline and companies have already been caught out by missing it. If you don’t notify HMRC in time you won’t be able to claim R&D relief. No exceptions. No appeals. What a waste.
Who needs to submit a Claim Notification?
- First-time claimants
- Companies that haven’t claimed in the last 3 years
- Companies amending a tax return that includes an R&D claim for an earlier period (if the amendment was made on or after 1 April 2023)
Key deadline: 6 months after your accounting period. Miss it and you’ll miss out.
What do you do now?
- Set a calendar reminder now – don’t leave this to chance.
- Get your project details and financials in order early to avoid mistakes in the submission.
- Talk to an R&D tax specialist if you’re unsure if you need to notify HMRC.
This is one of the biggest pitfalls of the new system. Make sure your company doesn’t fall into it.
5. Keep your R&D records in order
HMRC is scrutinising R&D tax credit claims more than ever, now reviewing 20% of claims, five times more than in 2022. Weak recordkeeping puts your claim at risk of delays or rejection.
To meet HMRC’s requirements, you must provide a detailed breakdown of R&D costs and explain how your projects resolved technical uncertainties to advance science or technology—something not easily addressed by a competent professional. This is where the new Additional Information Form (AIF) comes in. Including a claim report alongside it can further strengthen your case. Without clear, detailed documentation, your claim is likely to face HMRC enquiries.
Here’s how to make your claim stronger:
- Record R&D activities in real-time to avoid end-of-year guesswork.
- Accurately log and justify all claimable expenses.
- Write a clear technical narrative showing how your work resolves uncertainty.
- Use R&D tracking tools or professional advisors to keep records audit-proof.
The key? Strong documentation means faster, smoother, and lower-risk claims.
Act now, stay compliant, claim more
The R&D tax relief landscape has changed and SMEs must adapt fast. The merged scheme, new claim notification rules and stricter compliance means more is at stake than ever.
Here’s your to-do list:
- Check your eligibility – Are you better off under ERIS or the merged scheme?
- Adjust your cash flow – Lower relief rates mean plan ahead.
- Review your overseas R&D – Some costs may no longer be eligible.
- Don’t miss the claim notification deadline – No second chances.
- Keep bulletproof records – The best defence against HMRC scrutiny.
Last thought: The right approach now protects your claim, your funding and your business. Stay compliant, stay informed and don’t leave money on the table.
Seeking a trusted partner to help you build your R&D tax claim?
We’re here to help. Over 1200+ UK companies have trusted EmpowerRD’s R&D platform and specialists to help them build optimised, compliant R&D tax claims. Book a call with one of our team to see how we can help you.
