Billions of pounds in R&D tax relief go unclaimed in the UK every year. Not because businesses don’t qualify, but because they don’t realise they do.
According to HMRC’s September 2025 statistics, only 46,950 companies claimed R&D tax relief in the 2023–2024 tax year, receiving a total of £7.555 billion, a 26% drop from the 63,780 companies that claimed £7.69 billion the year prior.
The SME scheme saw claims fall by 29%, while the RDEC scheme grew by 36%, reflecting a structural shift in how the UK supports business innovation. For eligible businesses that didn’t file, that gap represents real, recoverable money left on the table.
What is the UK’s R&D Tax Relief scheme, and which businesses are eligible to claim?
The UK’s R&D tax relief scheme is administered by HMRC and rewards businesses that invest in qualifying science or tech-based innovation, development, and problem-solving, not just traditional lab-based research. In short, businesses must be seeking to advance a field of science and technology and in doing so, they are closing an apparent gap in the field through solving problems experts in the field cannot easily resolve using readily available knowledge.
From April 2024, the scheme operates under a single unified framework, merging the previous SME scheme and the old Research and Development Expenditure Credit (RDEC) into one streamlined system called the Merged R&D Scheme or new RDEC.
To be eligible, your business must be subject to UK Corporation Tax, which means the scheme applies to companies, not sole traders or partnerships or a defined list of ineligible enterprises such as charities and public bodies.
Crucially, R&D doesn’t mean the traditional view that only scientists in lab coats carry out R&D. When a company is seeking to gain that extra edge against its competition or creating one questions should start being asked. Qualifying R&D activities can be found in most industries which rely on some form of scientific or technological discipline to trade. If a company is carrying out an internal or external project which entails an extension or creating a process, material, device, product or service extending knowledge or capability, appreciably improving or in some cases duplicating the effect of an existing solution to provide a new/improved outcome can all be starting points to consider a claim. Broadly speaking this can include development or improvements in software, engineering and scientific based industries from agricultural activities to aerospace projects, which seek to resolve scientific/technological uncertainties (significant knowledge gaps) that existing knowledge couldn’t readily solve.
If your business is actively working through a technical challenge, even an internal one, there is a strong chance some of that work qualifies for relief. Even failed projects can qualify for relief. Furthermore, you can check if you qualify on the government website here noting the company typically has two years from the end of the accounting period the expenditure was incurred to claim.
How did the April 2024 reforms change claim calculations and compliance rules?
The April 2024 reforms did more than restructure the scheme. They fundamentally changed how claims are calculated, scrutinised, and valued. Previously there were two R&D claim routes based on company size/whether projects were subsidised or contracted out to the company. The routes were the old SME scheme and old RDEC which themselves had changed since the introduction of the incentive in the year 2000. Rules became complexed hence the change to a simplified mechanism of relief.
Under the new merged scheme framework, most companies now receive an above-the-line credit of 20%, with loss-making SME businesses being able to claim at a higher rate of 27% as part of the tax return calculations.
For many SMEs previously operating under the old scheme, this represents a meaningful shift in the relief they can expect to receive. For example, scenarios where cash was not receivable due to a company’s tax position were eliminated.
Alongside the rate changes, HMRC introduced considerably tighter compliance requirements. There is now a stronger emphasis on technical justification through the introduction of the AIF requirement, evidence quality, and accurate cost allocation.
Businesses are not encouraged to rely on a broad or informal approach to claiming tax reliefs. For R&D, HMRC has made clear that it expects claims to be specific, well-documented, and directly linked to clear scientific/technological advance and related uncertainty. First time claimants are likely to still have some leeway to set up appropriate project capturing systems.
In practice, this means companies filing today need to be far more disciplined in how they define qualifying activities, record project work, and substantiate costs.
Preparing a claim properly has become just as important as identifying the R&D in the first place and understanding exactly what qualifies is where most businesses still have significant ground to gain. Simple steps like appointing an R&D spotter could kickstart the process improvement for companies seeking to claim R&D. This is not to say retrospective assessments are still a reasonable route to claim tax relief but that there is a more robust way of claiming which can reasonably be adopted by claimant companies to improve the compliance of claims.
What constitutes qualifying R&D activity, and why do many founders self-exclude?
Many founders self-exclude their companies from claiming before they ever speak to a specialist and in doing so, leave substantial relief unclaimed. Constant changes to the scheme have made more established founders out of touch if they had already self-excluded themselves after a past experience. HMRC’s definition of qualifying R&D is deliberately broad.
It extends well beyond traditional lab-based science to include
- software development,
- fintech,
- construction science/tech,
- agricultural science/tech,
- engineering, including any sector where teams are working to solve technical problems or overcome uncertainty.
The key test is straightforward: Has your business spent time trying to achieve an advance that was not readily achievable using existing knowledge or established practice? If the answer is yes, even partially, there is a strong case for reviewing whether a claim applies.
The industry you operate in is rarely the deciding factor. What matters is the nature of the work itself in relation to the company’s trade. Some of the strongest R&D claims come from companies that never considered themselves innovators in the traditional sense.
Businesses that were simply improving a process, building a new internal system, or engineering a better solution to a problem their sector had not yet solved. If that sounds familiar, it is worth looking closer before assuming you don’t qualify.
In the next part we’ll cover how businesses can maximise their claim value, identify eligible expenses, and practical steps for adapting to HMRC’s compliance regime.