R&D tax relief in the UK went through its biggest structural change in decades. It all started when the merged scheme came into effect for accounting periods beginning on or after 1 April 2024. Two years into that transition, the claims coming through accounting firms are more technically demanding. They are also more likely to receive HMRC scrutiny, with significant consequences for not complying with Corporation Tax Outsourcing and requirements.
For practices that handle R&D claims as part of a broader client service, 2026 is the year to take stock honestly. The question isn’t whether your team can file an R&D claim. It’s whether the claims being filed are as strong as they should be, and whether the practice is carrying more risk on them than it realises.
| Key Metric | Value |
| Standard Merged Scheme Credit | 20% of qualifying expenditure |
| Effective Benefit After Corporation Tax (25%) | Approximately 15% |
| ERIS Credit Rate | 27% |
| ERIS Intensity Threshold | 30% of total expenditure |
| Additional Information Form (AIF) | Mandatory |
| PAYE Cap | £20,000 + 3x PAYE/NIC liability |
What the merged R&D scheme actually changed
Two schemes became one on 1 April 2024. For accounting firms that spent years navigating the difference between the SME regime and RDEC, the merged scheme looks simpler on the surface. In practice, the mechanics are different enough to cause errors in claims prepared by teams that haven’t specifically retrained on what changed and why.
What are the changes to the R&D scheme
Before April 2024, most accounting firms dealt with two separate regimes. The SME scheme, which gave an enhanced deduction of 230% on qualifying expenditure. And the Research and Development Expenditure Credit, or RDEC, which applied to large companies and gave taxable credit of 20%.
From 1 April 2024, those two schemes collapsed into one for most companies. The merged scheme applies RDEC-style mechanics to almost all claimants. Qualifying companies receive a 20% credit on eligible expenditure. That credit is taxable, which means the net benefit for a company paying corporation tax at 25% is around 15p for every £1 of qualifying spend.
For accounting firms used to calculating SME claims, the mechanics are different enough to cause errors if the team hasn’t retrained the new rules. The calculation flows differently. The accounting treatment differs. And the categories of expenditure that qualify have been redrawn in ways that catch people out.
Old vs New R&D Scheme
| Feature | SME Scheme (Pre-April 2024) | RDEC (Pre-April 2024) | Merged Scheme (2026) |
|---|---|---|---|
| Main Beneficiaries | SMEs | Large Companies | Most Companies |
| Credit Mechanism | Enhanced deduction | Taxable credit | Taxable credit |
| Headline Benefit | Up to 230% deduction | 20% credit | 20% credit |
| Effective Net Benefit | Variable | Approx. 15% | Approx. 15% |
| Additional Information Form | Required from Aug 2023 | Required from Aug 2023 | Required |
What are the ERIS exceptions to R&D activities
Loss-making SMEs that spend at least 30% of their total expenditure on qualifying R&D activity are treated differently under the Enhanced R&D Intensive Support scheme, or ERIS. They receive a 27% credit rather than 20%.
The 30% intensity threshold replaced the previous 40% threshold that applied during the transitional period in 2023. That change pulled more companies into ERIS eligibility than before, but identifying which clients qualify requires a calculation that goes beyond the R&D claim itself. Total expenditure in the denominator includes all costs of the business, not just R&D costs, and the figure has to be confirmed before the credit rate can be determined.
ERIS benefits examples
| Qualifying R&D Spend | Standard Scheme (20%) | ERIS (27%) | Additional Benefit |
|---|---|---|---|
| £100,000 | £20,000 | £27,000 | £7,000 |
| £250,000 | £50,000 | £67,500 | £17,500 |
| £500,000 | £100,000 | £135,000 | £35,000 |
| £1,000,000 | £200,000 | £270,000 | £70,000 |
For a practice handling a client who is borderline on intensity, the ERIS question isn’t academic. The difference between a 20% credit and a 27% credit on £500,000 of qualifying expenditure is £35,000 of additional benefit. Missing that calculation is a meaningful failure.
How much are subcontractor R&D costs under the merged scheme
One of the more significant technical changes in the merged scheme concerns subcontracted R&D. Under the old SME rules, a company that subcontracted R&D activity to a third party could generally include 65% of that cost in its claim, subject to conditions. Under the merged scheme, the treatment depends on who bears the contractual risk of the R&D.
If a company is contracted by a customer to perform R&D, the customer gets the claim, not the company doing the work. If a company contracts out its own R&D to a subcontractor, it can include the subcontractor costs in its claim, subject to conditions. Getting this wrong, particularly on development contracts where the direction of risk isn’t immediately obvious from the contract, is one of the areas HMRC is actively reviewing.
What is the Additional Information Form (AIF) for claims
Before August 2023, a claim could be filed with relatively limited supporting documentation. That changed when HMRC made the Additional Information Form mandatory. The AIF is now the document that determines whether a claim stands up or falls, and the quality of what goes into it varies enormously across the profession.
Why the AIF changed the risk profile for accounting firms
Since August 2023, every R&D claim filed with HMRC must be accompanied by an Additional Information Form, submitted through the Government Gateway before or alongside the CT600. A claim filed without it is invalid. HMRC has been clear on that point.
The AIF requires far more than a claim value and a box ticked. It asks for a description of each R&D project, the qualifying expenditure broken down by category, the name of a senior officer of the company who is responsible for the claim, and contact details for any agent involved. The project descriptions are where most of the real work is, and where most of the quality variation in claims shows up.
A technical narrative that describes qualifying activity in sufficient detail to withstand HMRC scrutiny is a different document from a narrative written to fill the required fields. The difference between them is experience and technical knowledge of what HMRC’s guidance actually requires.
For accounting practices that are writing these narratives without a specialist background in R&D, the gap between what is being submitted and what would survive a compliance check is often wider than anyone has explicitly assessed.
What HMRC expects to see in AIF
| Requirement | Purpose |
|---|---|
| Project Description | Demonstrate qualifying R&D |
| Scientific/Technological Advance | Show advancement beyond current knowledge |
| Technical Uncertainty | Evidence that uncertainty existed |
| Expenditure Breakdown | Support claim calculations |
| Senior Officer Details | Establish accountability |
| Agent Details | Identify advisers involved |
What is the competent professional standard
R&D for tax purposes is defined by reference to the guidelines published by the Department for Science, Innovation and Technology (DSIT), formerly BEIS. Under those guidelines, qualifying R&D must seek to achieve an advance in science or technology, and must involve the resolution of scientific or technological uncertainty.
The advance has to be an advance in the overall field of knowledge, not just an advance in the company’s own knowledge. A company that builds something it didn’t know how to build before, using methods that were already well established in the industry, is not conducting R&D within the statutory definition. Whether it meets that standard is assessed by reference to what a competent professional in the field would consider uncertain.
That test requires the person writing the claim to understand both the technical activity and the legal standard being applied to it. Most accounting professionals are well placed to understand the financial aspects of an R&D claim. The technical assessment, whether the activity genuinely resolves scientific or technological uncertainty, requires a different kind of knowledge. Getting an answer wrong on that question doesn’t just mean a weaker claim. It means a claim that might not qualify at all.
What is HMRC’s approach to compliance in 2026
HMRC’s R&D compliance team is better resourced than it was three years ago, and it is using that resource. Enquiry volumes have risen, the sectors under the most scrutiny are well documented, and the AIF has given HMRC a richer data set to work with than anything available under the previous filing regime. For practices managing R&D claims without specialist support, the risk exposure from a compliance check is real and growing.
Where are HMRC’s R&D compliance focus areas
R&D compliance activity has increased substantially since 2022. HMRC’s R&D compliance team has grown, the volume of compliance checks has risen, and the areas of focus are fairly consistent with what the profession has been told to expect.
Software claims have received particular attention. The concern is that software development work that is routine, or that uses existing frameworks and tools in straightforward ways, has been included in claims as though it constitutes R&D. HMRC’s guidance requires that software R&D involves the advance of software technology itself, not merely the application of existing technology to a new problem. Claims in this area that were filed in 2021 or 2022 under a more generous interpretation of the rules are being revisited.
Construction and property development claims have also drawn scrutiny. The sector has generated a high volume of claims in recent years, many of which HMRC considers lacking genuine qualifying activity.
The additional information form has given HMRC more data to work with than it had before. The project descriptions submitted through the AIF are analysed, and those that use vague or formulaic language, or that describe activity that doesn’t match the statutory definition, are more likely to trigger a compliance check.
What does a compliance check look like in practice
For accounting firms whose clients receive an R&D compliance check, the process starts with a letter from HMRC asking for additional information. The letter will typically ask for detailed project descriptions, evidence of the qualifying expenditure, explanation of how the activities meet the definition of R&D and sometimes interviews with technical staff at the company.
A practice that filed the original claim without specialist R&D knowledge is in a difficult position at this point. It doesn’t necessarily have the technical narrative that supports the claim, because the narrative in the AIF may have been minimal. It may not have documented the basis for the claim in a way that holds up under scrutiny. And the client is looking to the practice for managing a process it may not have the expertise to manage well.
Enquiries that result in claims being withdrawn or reduced carry implications beyond the immediate tax adjustment. HMRC may apply penalties where it considers a claim to have been inaccurate. The practice’s relationship with the client is affected. And the practice’s own exposure, if it prepared and submitted the claim, is real.
What is the complexity in research development tax relief UK 2026
The merged scheme didn’t simplify the qualifying expenditure rules. It changed them, and in some categories it tightened them. Practices applying the old SME scheme logic to merged scheme claims are, in a number of specific situations, producing the wrong answer, without the return itself showing any obvious sign that something is off.
Qualifying expenditure categories: more detail than before
The categories of qualifying expenditure under the merged scheme are staffing costs, subcontractor costs (subject to the conditions described above), externally provided workers, consumables, trials and prototypes, data and cloud computing costs. Each category has its own conditions.
Externally provided workers, or EPWs, are a category that generates errors in a significant proportion of claims. These are workers supplied through staffing agencies, typically working on-site at the company where the agency is the employer and the company is the end-user. Under the merged scheme, 65% of qualifying EPW costs can be included in the claim. The calculation requires confirmation that the EPW agreement meets the statutory definition and that the worker was engaged directly in qualifying R&D activity.
EPW worker example
| Cost Item | |
|---|---|
| Agency Worker Cost | £100,000 |
| Qualifying Percentage | 65% |
| Eligible Expenditure | £65,000 |
| Credit at 20% | £13,000 |
The data and cloud computing cost category was introduced more recently. Companies can now claim for datasets and cloud computing costs incurred in the direct support of R&D activity. The conditions on what qualifies within this category, particularly around data that is commercially available versus data specifically assembled for the R&D, require careful assessment.
What are the new rules under subsidised expenditure:
Under the merged scheme, the subsidised expenditure restriction works differently. Grant funding received for specific R&D projects still affects the claim, but the mechanics of the reduction are different from the previous treatment.
For clients receiving Innovate UK grants or other public funding alongside their R&D activity, the interaction between the grant and the R&D claim needs to be worked through explicitly. It’s not a straightforward exclusion any more, and applying the old rules to the new scheme produces the wrong answer.
What is PAYE cap and implications for small claims
The payable credit, the amount a loss-making company can receive as a cash repayment, is subject to a PAYE cap. The cap limits the repayable element to three times the company’s total PAYE and NIC liability for the period, plus £20,000.
For companies with very small payrolls, the PAYE cap limits the cash benefit significantly. A company claiming on £200,000 of qualifying expenditure, mostly subcontractor costs, with a PAYE and NIC liability of £20,000, hits the cap quickly. Understanding the cap and planning around it, sometimes by adjusting the mix of expenditure categories or structuring the claim across multiple periods, requires technical knowledge of how the cap calculation works.
| Item | Amount |
|---|---|
| PAYE/NIC Liability | £20,000 |
| Multiplier | 3x |
| PAYE Cap Calculation | £60,000 |
| Fixed Addition | £20,000 |
| Maximum Repayable Credit | £80,000 |
What is involved in R&D tax credit preparation UK
There is a wide gap between a claim that has been filed and a claim that has been properly prepared. From the outside, both look like a completed CT600 with an R&D credit on it. From the inside, and from HMRC’s perspective when it looks closely, they are very different things. What specialist preparation actually requires, and why it matters, is worth being specific about.
The gap between a filed claim and a defensible one
There is a wide range in the quality of R&D claims filed by accounting firms. At one end, claims where the qualifying activity has been properly identified, the technical narrative meets the DSIT guidelines, the expenditure has been categorised correctly, the AIF has been written to survive scrutiny, and the whole thing is documented in a way that supports the numbers. At the other end, claims where a reasonable estimate of qualifying expenditure has been applied to a broad project description and submitted through software, with minimal documentation and limited technical review.
Both types of claims get filed. The difference between them doesn’t show up until HMRC looks closely.
The practices that consistently produce claims in the first category either have specialist R&D knowledge in-house or have an outsourcing arrangement with a provider who does. The practices in the second category are often not aware that there is a difference, because the claims haven’t been challenged yet.
Common Reasons R&D Claims Fail HMRC Review
| Issue | Impact |
|---|---|
| No technological uncertainty identified | Claim rejected |
| Generic project descriptions | Increased enquiry risk |
| Unsupported expenditure calculations | Partial reduction |
| Incorrect subcontractor treatment | Claim adjustment |
| Failure to meet ERIS threshold | Reduced benefit |
| Missing supporting evidence | Higher compliance risk |
What specialist R&D claim preparation involves
A properly prepared R&D claim for the UK merged scheme in 2026 typically involves:
- A technical review of the client’s activities against the DSIT definition, conducted by someone with knowledge of both the legal standard and the relevant technology or science sector. That review identifies which projects qualify, which activities within those projects are qualifying, and which are not.
- A financial analysis that traces the qualifying expenditure through the company’s accounting records, identifies staffing costs attributable to qualifying activity, reviews subcontractor agreements, checks EPW arrangements, and confirms the PAYE position for cap purposes.
- An AIF technical narrative for each qualifying project that describes the advance sought, the uncertainty overcome, and the qualifying work in terms that are specific enough to survive a compliance check. This is not a generic description. It is a document that requires knowledge of the client’s actual technical activity.
- A CT600 computation that applies the correct credit rate, accounts for any ERIS eligibility, handles the PAYE cap calculation, and produces numbers that reconcile the claim documentation.
That is a substantial piece of work. It is not what a generalist accountant can produce quickly alongside a busy tax return season without specialist support.
How does R&D tax credits outsourcing UK work in practice
Outsourcing R&D claims is not a single arrangement. It sits on a spectrum from full referral, where the practice steps back entirely, to a collaborative model where the technical work transfers but the client relationship stays put. Which end of that spectrum suits a particular practice depends on how the practice positions R&D within its service offering, and how much of the associated risk it wants to carry.
What practices are outsourcing and what they’re keeping
For accounting firms that have decided to outsource R&D claims rather than handle them in-house, the scope question is the first one to resolve.
Some practices outsource the entire claim process. They introduce the client to the specialist provider, step back from the technical work, and receive a completed claim ready for CT600 integration. This model suits practices that want to offer R&D claim referrals without carrying the technical risk.
Others outsource the specialist technical elements and retain client contact. The practice manages the relationship, gathers the financial information, and passes the technical review and AIF preparation to the specialist. The specialist returns a completed technical narrative and expenditure schedule. The practice incorporates it into the return and maintains the client relationship throughout.
The second model is the one that tends to work best for practices that see R&D as part of a broader advisory service. It keeps the client relationship where it belongs, with the practice that knows the client, while the technical work goes where the expertise is.
What is risk allocation in R&D outsourcing
One of the less-discussed aspects of R&D outsourcing arrangements is who bears the risk if a claim is challenged and found to be wrong.
In a well-structured outsourcing arrangement, the specialist provider takes responsibility for the technical quality of what they produce. The AIF narrative they write, the expenditure analysis they perform, the technical conclusions they reach. If HMRC challenges those on technical grounds, the provider supports the defence.
The practice retains responsibility for the overall CT600 and the client relationship. If the challenge is about client-specific facts that the practice provided to the specialist, the responsibility sits differently.
Getting this written down clearly before the arrangement starts avoids misunderstandings when a compliance check arrives. Because compliance checks do arrive, and how the practice and its outsourcing provider handle them together determines whether the outcome is manageable or damaging.
What to look for when you outsource R&D claims accounting firms
The R&D outsourcing market has grown quickly, and quality varies considerably. There is no licensing requirement to offer R&D tax advice in the UK, which means the range of providers operating in this space is broad. Knowing what to look for, and what questions to ask before committing to an arrangement, is worth spending time on before the first client file goes across.
Technical credentials of the outsourcing provider
The R&D tax credits sector has no formal licensing regime. Anyone can position themselves as an R&D tax specialist. That has led to a wide range of providers operating in the market, with significant variation in quality.
The credentials worth looking for are CIOT or ACA qualified advisers with R&D-specific experience, a track record of handling HMRC compliance checks, specific sector knowledge in the industries your clients operate in, and references from accounting firms who have used the service rather than from the end clients themselves.
R&D claims in life sciences, engineering, software, and construction have very different technical requirements. A provider with deep knowledge in one sector may not be the right choice for a practice whose client base spans several.
How does a R&D claims specialist write the AIF narrative
Ask to see an example of an AIF project description they have written for a previous claim. The narrative should be specific, technical, and grounded in the facts of the company’s activity. It should identify the advance sought, explain why the outcome was uncertain, and describe the work done to resolve that uncertainty.
If the example looks generic, or if the provider tells you they can’t share one, that’s relevant information. The technical narrative is the document that stands between the client’s claim and an HMRC enquiry. It needs to be good.
What is their approach to borderline R&D qualifying cases
Not every activity a client thinks is R&D actually qualifies. A provider whose answer to every claim assessment is that the full spend qualifies is not exercising appropriate judgment. The better providers are the ones who will tell a practice, and by extension a client, that some of what they are doing qualifies and some doesn’t, and explain why.
That conversation is sometimes uncomfortable. It is far less uncomfortable than a compliance check that reduces a claim by 60% because the qualifying activity was overstated.
Final Thoughts on R&D claims in 2026
The merged scheme is more complex than the SME scheme it replaced for most claimants. HMRC’s compliance activity is more intensive. The AIF requirement means that every claim now produces a document that HMRC can review and challenge. And the financial consequences of a claim being found incorrect, including potential penalties, have real implications for clients and for the practices that prepared those claims.
For accounting practices that care about the quality of the technical work going out under their name, handling R&D claims in-house without specialist knowledge is a risk worth being honest about. Outsourcing to a specialist who understands the merged scheme mechanics, writes AIFs that survive scrutiny, and handles compliance checks with experience doesn’t reduce the practice’s service offering. It improves it.
AcoBloom has been supporting UK accounting practices with specialist tax outsourcing for 18 years. R&D claim preparation under both the old SME and RDEC schemes and the new merged regime is part of that service, and the technical approach is built around defensibility from the point of preparation, not from the point of challenge.
If your practice handles R&D claims and you have questions about whether the current process is producing claims of the quality the regime demands, it’s worth a conversation.
