Due to the numerous recent changes to the R&D Tax Credit programme. We’ve received many questions regarding preparing your 2025 R&D Tax Credit claims.

Here is a summary of the key changes:

1. Merged R&D Scheme (RDEC): The new merged R&D Tax Credit scheme comes into effect for accounting periods beginning on or after 1 April 2024. The R&D Tax Credit rates have decreased substantially. For companies subject to the standard corporate tax rate, the effective R&D Tax Credit rate is now approximately 16% of eligible R&D costs and is fully refundable.
2. Enhanced Relief for R&D-Intensive SMEs (ERIS): For R&D intensive SMEs in a tax loss position, the ERIS scheme provides an effective R&D Tax Credit refund of approximately 27% of eligible R&D costs. To qualify, an SME must incur at least 30% of its total expenditure on R&D expenditures for accounting periods commencing on or after 1 April 2024. (The threshold is 40% in the prior accounting period).
3. R&D work done outside the UK: Essentially, contract and externally provided workers who do R&D work done outside the UK will no longer qualify for accounting periods commencing after 1 April 2024. This will affect companies contracting out R&D to companies or individuals in other countries. There are some exceptions where it is not possible to carry out the particular R&D activity in the UK. As an example, where a company must carry out R&D trials under Arctic conditions. Therefore must carry out the work in northern Norway and engage foreign contractors to do the trials, then these costs can be claimed.
4. Subcontracted R&D: Previously, HMRC had been applying certain provisions of the corporate tax act broadly to negate an R&D Tax Credit claim under the SME scheme. Where the R&D costs of the SME were covered by any related contractor customer revenue. Under the new scheme, where an SME is doing work for another company (payor). There are rules to decide which company can make the R&D Tax Credit claim. Essentially, did the company who engaged the contractor intend for the contractor to undertake R&D on its behalf? If the intention was for the contractor to carry out R&D on the payor’s behalf. Then the payor would claim the contract fees as an eligible R&D expenditure. It is important to make this intention clear in the contract with the contractor. This is a tricky area, but RDP has substantial experience to make this determination with confidence. As we have assisted with over 10,000 R&D Tax Credit claims.
5. Subsidised costs: Along with the change to the contractor rules, any grants received by a company will no longer affect an R&D Tax Credit claim. Under the old SME scheme, if an SME received a grant (state aid), it could not make an R&D claim for the project to which the grant related under the SME scheme. But would have to claim the R&D project under RDEC. Under the new scheme, any grants received do not negate an R&D Tax Credit claim. Or require the R&D costs to be reduced by the amount of the grant.

Main Considerations for preparing an R&D Tax Credit claims in 2025.

1. Assessing an eligible R&D project: The most important part of any R&D Tax Credit claim is to properly identify and describe an eligible R&D project. Of the three main criteria that need to be met, Technological Uncertainty is the most important. An R&D project starts when a Technological Uncertainty is identified and ends when the uncertainty is resolved. In addition, the resolution of the uncertainty is what creates the advance. The Technological Uncertainty is also the most difficult to identify and describe. Our experienced technical team has prepared over 10,000 R&D Tax Credit claims and can quickly assess an eligible R&D project.
2. Claiming related R&D costs: With the changes to the restrictions on foreign contract fees and the introduction of new eligible costs like data cost. It becomes even more important to ensure a company is maximising their R&D Tax Credit claim.
3. Looking at subcontracted R&D work: The changes to contracted out R&D work requires good judgment. RDP can assist in determining who can make the R&D Tax Credit claim on the portion of contracted out work.
4. Required Notification: Companies – Filing an R&D Tax Credit claim for the first time or those companies that have not filed an R&D Tax Credit claim in the prior 3 years. Must file a notification of their intention to file an R&D Tax Credit claim. This notification must be filed within 6 months of the end of the accounting period in which the R&D tax credit claim is to be filed. If not, the company will not be able to file an R&D Tax Credit claim for that accounting period. This is a complicated area, and you should seek advice to determine if you have filed a R&D tax credit claim in the past 3 years.

How to document your R&D Tax Credit claim

So with HMRC now carrying out a significant number of compliance reviews of R&D tax credit claims. It is important that a company’s R&D Tax Credit claim is properly supported with adequate documentation. RDP’s Innovation Connection Program provides a practical solution. Our real-time R&D tracking system captures all R&D work and time spent and our clients tell us it is very easy to use. As the R&D Tax Credit landscape has changed dramatically over the past few years. RDP is here to help. If you have questions about the new rules, schemes, eligibility, documentation, how to prepare you R&D claim, or maybe our services and fees. Please contact 0208 214 1341 or [email protected]k to discuss further.