If you’ve been putting off dealing with your R&D tax credit claim because the rules changed and nobody seems to agree on what the new ones actually say, you’re not alone. The merger of the SME and RDEC schemes into a single combined framework has created genuine confusion, and HMRC’s compliance activity in this space has intensified sharply. I’ve spoken to several founders who’ve either filed cautious claims well below what they were entitled to, or who’ve sailed in with aggressive figures and ended up in a back-and-forth with HMRC that lasted the better part of a year. Neither outcome is ideal. This guide cuts through the noise on R&D tax credits UK 2025, so you know what changed, what qualifies, and how to submit something you can actually defend.
What actually changed with the merged R&D scheme
From accounting periods beginning on or after 1 April 2024, the old two-track system collapsed into one: the merged Research and Development Expenditure Credit (RDEC) scheme. Loss-making SMEs that previously relied on the payable credit under the SME scheme now operate under the new SME intensive rate, which applies if your qualifying R&D expenditure represents at least 30% of your total expenditure. That intensive rate currently sits at 27%, while the standard merged scheme rate is 20%.
The practical implication for most founder-led businesses is a reduction in benefit compared with what the old SME scheme offered for loss-making companies. Under the previous rules, a qualifying loss-making SME could receive a payable credit worth up to 18.6p in every £1 of qualifying spend. Under the merged scheme, unless you hit that 30% intensity threshold, the effective benefit is lower. That shift matters for cash flow planning, particularly for early-stage businesses where the R&D credit was effectively funding the next sprint of development.
Which costs genuinely qualify in 2025
The qualifying cost categories haven’t changed dramatically, but HMRC’s scrutiny of how businesses categorise expenditure has. These are the main heads worth understanding:
Staff costs remain the largest component for most claims. This covers salaries, employer National Insurance contributions, and pension contributions for employees directly engaged in R&D. If a developer splits their time between qualifying R&D work and routine software maintenance, only the R&D portion counts. You need timesheets or some contemporaneous record to support that split; a rough estimate written up at claim time won’t survive scrutiny. Given the changes to employer NI that came into effect earlier this year, accurate payroll attribution is worth getting right. Our piece on the real payroll impact of National Insurance changes covers the mechanics in detail if you need a refresher on what sits in which cost bucket.
Subcontractor costs changed meaningfully under the merged scheme. You can now claim 65% of qualifying payments to subcontractors, regardless of whether they’re connected parties. Previously, SME scheme claimants couldn’t claim payments to connected subcontractors at all unless specific conditions were met. That’s a genuine improvement for groups of companies doing internal R&D work across subsidiaries.
Consumables and materials incorporated into the R&D process qualify, as do payments for cloud computing and data licences directly used for qualifying activity. HMRC clarified the cloud compute position in 2023 and it carried through into the merged scheme, which is useful for software businesses running experiments on AWS or Azure infrastructure.
What doesn’t qualify: routine software development that improves an existing product without resolving a genuine technical uncertainty; business-as-usual testing; and any work that could have been done by a competent professional without needing to advance the state of knowledge in the field. That last point is where most marginal claims fall apart.
The technical narrative: your single biggest compliance risk
HMRC introduced the Additional Information Form (AIF) requirement in August 2023, and it remains in place for the merged scheme. Every claim must be accompanied by a detailed technical narrative submitted through the online portal before the CT600 is filed. If you file the tax return first, the claim is invalid.
The narrative must describe the scientific or technological uncertainty you were trying to resolve, explain why that uncertainty wasn’t something a competent professional in the field could have figured out without R&D, and set out how your work sought to advance knowledge. Generic descriptions kill claims. I’ve seen AIF submissions that read as though they were written by someone who’d never visited the company. HMRC’s compliance teams now compare the technical narrative against Companies House filings, your website, and any previous claims. Inconsistencies get flagged.
If your business is doing genuinely innovative work, the narrative should feel natural to write. If it’s a struggle to articulate the uncertainty, that’s often a sign the claim is weaker than assumed. This is one area where working with an R&D specialist who has sector-specific technical knowledge is worth the fee. The HMRC guidance on R&D relief is more detailed than many people realise and worth reading before you engage any adviser.
How to make a claim that doesn’t attract a compliance review
HMRC opened over 3,000 R&D compliance checks in 2022-23, many targeting claims filed in the previous three years. The volume of enquiries has remained high. A few practical steps substantially reduce the risk.
Keep contemporaneous records throughout the year, not just at claim time. Project logs, Jira tickets, Slack threads, Git commit histories, lab notebooks: anything that shows the work was happening as described, in real time. These don’t need to be formatted for HMRC, but they need to exist. If you’re asked to evidence a claim submitted 18 months ago and all you have is a spreadsheet assembled by your accountant, that’s a difficult position to defend.
Be conservative on boundary cases. If you’re genuinely uncertain whether a cost qualifies, either exclude it or document your rationale in writing before filing. Unexplained increases in claim size year-on-year are a known trigger for compliance checks, particularly in sectors HMRC considers high-risk for abuse, which currently includes digital marketing, ERP implementation, and certain construction-adjacent software businesses.
Get a named individual to sign off on the technical narrative who can speak to it under questioning. The named contact on the AIF should be someone with direct knowledge of the R&D, not just the finance lead. If your business is serious about protecting and monetising its technical work, you’ll likely already have thought carefully about the value of intellectual property within the company structure, and that documentation trail supports an R&D claim as a useful side effect.
Planning ahead: making the scheme work for your business
R&D tax credits work best when they’re built into financial planning from the start of a project, not bolted on at year-end. That means identifying qualifying projects early, tracking costs against them throughout the year, and revisiting the intensity threshold regularly if you’re hoping to access the higher SME rate.
For companies that are scaling and taking on external investment, R&D credits interact with your funding structure in ways that aren’t always obvious. Certain grant funding can reduce your qualifying expenditure or switch you from the SME to the RDEC pathway. If you’ve taken venture debt or grant funding alongside equity, check how that affects your claim before filing. Our overview of venture debt for UK startups is worth reading alongside any R&D planning, since the interaction between grant conditions and tax relief eligibility catches founders out more often than you’d expect.
The merged scheme is more straightforward in some respects than what came before, but HMRC’s appetite for checking claims hasn’t softened. A well-documented, conservatively prepared claim filed correctly will almost always outperform a large, poorly evidenced one. Get the narrative right, keep the records, and treat this as a year-round process rather than a February scramble.