If you are building genuinely novel software, R&D tax relief can still put real cash back into your business. But the rules changed significantly in April 2024, and the amount you get now depends heavily on how much of your spend goes on R&D. The rules introduced in April 2024 continue to apply in 2026…
In short: R&D tax relief lets UK companies cut their Corporation Tax bill, or claim a cash credit, for work that resolves genuine technical uncertainty. Since April 2024 most companies claim under the merged scheme at a 20% credit. Loss-making, R&D-intensive SMEs that spend 30% or more of their total costs on R&D can claim more through ERIS, worth around 27% of qualifying spend.
Key takeaways
- For accounting periods starting on or after 1 April 2024, most companies claim under the merged scheme: a 20% above-the-line credit. The 20% taxable credit is typically worth between 15% and 16.2% net, depending on the company’s Corporation Tax position
- ERIS rewards loss-making SMEs that spend 30% or more of total expenditure on R&D, ERIS can provide a benefit of up to approximately 27% of qualifying expenditure
- Routine development does not qualify. There has to be a genuine advance in technology and a technical uncertainty a competent professional could not easily resolve
- Every claim now needs an Additional Information Form (AIF) submitted before the Company Tax Return
- ERIS offers a one-year grace period: qualify once and you can claim again the next year even if your R&D intensity dips below 30%
- Where the work happens now matters. Since April 2024, subcontracted R&D and externally provided workers generally qualify only where the work is carried out in the UK. Offshore development teams are the most common reason a SaaS claim comes back smaller than expected
What is R&D tax relief, and does SaaS qualify?
R&D tax relief rewards companies for investing in resolving scientific or technological uncertainty. For your work to qualify, it has to seek an advance in the field, not just in your own product, and tackle a problem that a competent professional in the field could not readily work out.
For SaaS, that line matters. Building something genuinely novel can qualify: new architecture to solve a performance or scalability problem with no off-the-shelf answer, novel algorithms, or integration challenges that require real experimentation. Configuring existing tools, standard app development and routine feature work usually do not. The test is about technical difficulty, not commercial novelty, so a clever business idea built with well-trodden technology will not count on its own. And the project does not have to succeed: abandoned and ongoing work both qualify, provided you were genuinely trying to resolve a technical uncertainty.
Which scheme applies: the merged scheme or ERIS?
Since April 2024 the old SME and RDEC schemes have been combined into a single merged scheme. Most companies, profitable or not, claim the 20% above-the-line credit under it.
The exception is ERIS (Enhanced R&D Intensive Support), for loss-making SMEs whose qualifying R&D is 30% or more of their total expenditure. As a rough illustration, a pre-revenue SaaS company spending £300,000 on R&D out of £800,000 total costs has an intensity of around 37.5%, so it would claim the more generous ERIS rather than the merged scheme.
One piece of good news: under the merged scheme, grant funding no longer pushes you into a less generous regime the way subsidised expenditure did under the old SME rules. An Innovate UK grant and an R&D claim can now sit alongside each other, so a grant is no longer a reason not to claim.
How much could a startup actually get back?
It depends on your position:
- Profitable and paying 25% Corporation Tax: around 15% of qualifying spend. Profits between £50,000 and £250,000 fall in the marginal relief band, so your effective rate, and with it your net benefit, will sit slightly differently.
- Loss-making but not R&D-intensive: around 16.2%.
- Loss-making and R&D-intensive (ERIS): around 27%.
So £100,000 of qualifying R&D spend might return anywhere from roughly £15,000 to £27,000 depending on where your business sits. The exact figure turns on your numbers, so it is worth modelling before you assume a return.
What costs can you include, and where can they be incurred?
Qualifying expenditure is broader than most founders assume. The core of it is staff cost – salaries, employer’s National Insurance and pension contributions – apportioned to the time actually spent on R&D. On top of that:
- Externally provided workers and subcontracted R&D, subject to the location rules below.
- Software licences, plus cloud computing and data licensing costs used directly in the R&D, qualifying since April 2023.
- Consumables and a share of utilities used up in the R&D process.
Capital expenditure is excluded, though R&D capital allowances may be available separately.
Two rules catch software companies out. First, location. For accounting periods starting on or after 1 April 2024, payments for externally provided workers and subcontracted R&D generally qualify only where the work is performed in the UK. Narrow exceptions exist where the conditions the work requires are genuinely unavailable here, but lower cost and easier access to skilled developers are explicitly not enough. If your engineering team sits offshore, model this before you budget for a claim. Your own UK employees’ time still qualifies.
Second, who gets to claim. Where R&D is contracted out, the relief generally goes to the company that decided to do the R&D and so carried the risk, not the one doing the work. If you engage an agency to undertake R&D on your behalf, you will often be the claimant under the new rules, although entitlement depends on the contractual and factual circumstances. If you write software to someone else’s specification, you may not be.
What do you need to claim?
Two things trip founders up most. First, the paperwork: you have to file an Additional Information Form before your Company Tax Return, setting out the projects, the technical uncertainties and the qualifying costs.
First-time claimants, and anyone who has not claimed in the last three years, also have to submit a claim notification form within six months of the end of the period of account. Miss that window and the claim is invalid however good the underlying R&D.
Second, the evidence: keep a contemporaneous record of the uncertainties you tackled and the time your team spent, rather than reconstructing it a year later. The claim itself must generally be made within two years of the end of the accounting period.
Frequently asked questions
Can a pre-revenue startup claim R&D tax relief?
Yes. Under the merged scheme the credit is worked out first, then set against your Corporation Tax liability, with the balance payable to you in cash – so a company with no tax to pay can still receive money. ERIS was designed with exactly this kind of early-stage, R&D-heavy business in mind, so being pre-revenue is not a barrier to claiming.
Do cloud and data costs count as qualifying expenditure?
They can. Since April 2023, cloud computing and data licensing costs used directly in R&D are qualifying categories, alongside staff, subcontractor and software costs. What matters is that the spend relates to the part of the project that resolves genuine technical uncertainty.
How long does an R&D claim take to pay out?
Processing times vary depending on claim complexity and HMRC compliance activity. Strong, contemporaneous documentation is the best way to keep a claim moving and avoid an inquiry.
Could claiming trigger an HMRC enquiry?
It is possible. HMRC has stepped up scrutiny of R&D claims, which is why the technical narrative and cost breakdown need to be robust and honest. A well-evidenced claim from a company doing genuine R&D has nothing to fear, but a speculative one is a real risk.
Does R&D carried out by an overseas development team qualify?
Usually not, for accounting periods starting on or after 1 April 2024. Payments for externally provided workers and subcontracted R&D generally qualify only where the work is performed in the UK. There are narrow exceptions where the conditions the work needs are genuinely unavailable in the UK, but lower cost and easier access to skilled workers do not count. Time spent by your own UK employees still qualifies.
Does a failed project still qualify?
Yes. R&D relief rewards the attempt to resolve technical uncertainty, not the outcome. Abandoned and ongoing projects both qualify, provided you can show the advance you were seeking and the uncertainty you were trying to resolve. In practice, projects that failed often make the strongest technical narratives.
How Atek can help
R&D relief is one of the most valuable reliefs available to a SaaS business, and also one of the easiest to get wrong. HMRC has tightened its approach considerably, and the market is still full of advisers who will file a speculative claim on a contingent fee and leave you to answer the inquiry.
At Atek, we help tech founders claim confidently and defensibly. We can support you with:
- Eligibility and scheme assessment: confirming whether your work qualifies and whether the merged scheme or ERIS applies
- Identifying qualifying projects and costs, including staff, externally provided workers, subcontractors, software, cloud, data and consumables
- Intensity calculations to test whether you meet the 30% ERIS threshold
- Preparing and filing the Additional Information Form and the claim itself, with a robust technical narrative
- Reviewing where your R&D is carried out and who is entitled to claim it, so overseas and contracted-out work is treated correctly
- Tracking your claim notification and filing deadlines, so a valid claim is never lost on a technicality
- Standing behind the claim if HMRC opens an enquiry
If you are building something genuinely new, let us make sure you are claiming everything you are entitled to. Get in touch with Atek today and we will assess your position.
This article is general guidance, not tax advice. R&D claims depend on your specific circumstances, so please speak to us before you act.
