Research & Development (R&D) Tax Credits on CT600: SME Guide 2026

Research & Development (R&D) Tax Credits on CT600: SME Guide 2026

If your limited company develops new products, processes, or services — or improves existing ones — you may be leaving thousands of pounds on the table. R&D tax credits are one of the most valuable but underused reliefs available to UK companies, and claiming them on your CT600 can slash your corporation tax bill or even generate a cash payment from HMRC.

But the R&D landscape has changed dramatically. The merged R&D scheme (effective from April 2024) replaced the old SME and RDEC schemes, and HMRC compliance checks have surged. Getting your CT600 R&D claim right has never been more important — or more complex.

This guide covers everything a UK limited company needs to know about claiming R&D tax credits on the CT600 in 2025/26: qualifying expenditure, the merged scheme rates, how to complete the CT600 and CT600L supplementary page, HMRC compliance requirements, and whether to take a cash credit or tax reduction.

What Are R&D Tax Credits?

R&D tax credits are a government incentive that rewards UK companies for investing in innovation. If your company spends money on research and development activities, you can claim additional tax relief on that expenditure.

The core concept: Your company does R&D → you incur costs → you claim enhanced relief on those costs → your corporation tax bill decreases (or you receive a cash payment).

R&D tax credits are governed by Part 13 of the Corporation Tax Act 2009 (as amended by the Finance Act 2024) and the BEIS Guidelines on the Meaning of Research and Development.

Important: R&D tax credits are not just for tech companies. Any limited company in any sector that seeks to resolve scientific or technological uncertainty can qualify — from software developers to manufacturers, from food producers to construction firms.

The Merged R&D Scheme (From April 2024)

From accounting periods beginning on or after 1 April 2024, the old SME R&D scheme and the large company RDEC (Research & Development Expenditure Credit) scheme were merged into a single scheme — the merged R&D scheme.

Key Rates for 2025/26

For qualifying loss-making R&D-intensive SMEs, a higher rate is available under the Enhanced R&D Intensive Support (ERIS) scheme — see below.

How the Merged Scheme Works

The merged scheme uses an above-the-line expenditure credit — a direct credit against your corporation tax liability, rather than an additional deduction from profits:

1. Your company incurs qualifying R&D expenditure of, say, £100,000
2. You receive a 20% above-the-line credit: £100,000 × 20% = £20,000
3. The credit is treated as income in your accounts, and then offsets your corporation tax liability
4. For a profitable company at 25% CT: the £20,000 credit income generates £5,000 CT on that income, so the net benefit is £15,000 — or 15% of your qualifying R&D spend

For loss-making companies, the mechanics are different — see the "Cash Credit vs. Tax Reduction" section below.

R&D Intensive Companies — Enhanced Rate (ERIS)

If your company is a loss-making SME and qualifies as "R&D intensive" (R&D expenditure represents 30% or more of your total expenditure), you may be eligible for the Enhanced R&D Intensive Support (ERIS) scheme instead:

• Additional deduction: 86% of qualifying R&D expenditure (on top of the normal 100% deduction)
• Total deduction: 186% of qualifying R&D expenditure
• Cash credit rate: 14.5% of surrenderable loss
• Effective cash credit: approximately 27% of qualifying R&D spend (14.5% × 186%)
• Available for accounting periods beginning on or after 1 April 2024

ERIS uses deduction-plus-surrender mechanics: the company claims an enhanced deduction that increases its loss, then surrenders those enhanced losses to HMRC in exchange for a cash payment at 14.5%. This is a separate regime from the merged scheme's above-the-line credit approach.

To qualify for ERIS, your company must:

• Be an SME (fewer than 500 employees, turnover under €100M or balance sheet under €86M)
• Have qualifying R&D expenditure equal to at least 30% of total expenditure
• Be loss-making (or have losses attributable to R&D)

What Qualifies as R&D?

This is the question that trips up most companies. HMRC uses a specific definition based on the BEIS Guidelines, not the everyday meaning of "research and development."

The HMRC Definition

To qualify as R&D, a project must seek to achieve an advance in science or technology by resolving scientific or technological uncertainty.

Advance in science or technology means:

• Extending overall knowledge or capability in a field of science or technology
• Not just your company's knowledge — it must be an advance beyond what's generally available to competent professionals in the field

Scientific or technological uncertainty means:

• Whether something is scientifically possible or technologically feasible is not readily deducible by a competent professional
• It's not enough that the solution is merely difficult — there must be genuine uncertainty about how to achieve it

What Qualifies — Examples

Software development:

• Developing a new algorithm to solve a problem that existing methods can't handle efficiently
• Building a system that integrates technologies in a novel way where the outcome is uncertain
• Creating AI/ML models where the approach and architecture are unproven
• Overcoming technical challenges in scaling, performance, or reliability

Manufacturing:

• Developing a new production process that hasn't been achieved before
• Adapting existing processes to work with new materials where outcomes are uncertain
• Achieving tolerances or specifications beyond current industry capability

Engineering:

• Designing structures or systems that push beyond established design practices
• Developing new testing methodologies where existing approaches are inadequate

Life sciences:

• Developing new formulations, compounds, or biological processes
• Clinical trials and testing of new products

What Does NOT Qualify

• Routine development — building a website, app, or system using established techniques with no technical uncertainty
• Cosmetic or aesthetic improvements — changing the design or look of a product
• Market research — researching customer needs or market opportunities
• Social sciences — economics, business studies, management theory
• Arts and humanities — creative writing, design (unless combined with technological uncertainty)
• Simply using existing technology — implementing off-the-shelf software, following standard procedures

Not sure if your work qualifies? HMRC's advance assurance service lets first-time claimants get confirmation before claiming. For any R&D claim, consult a qualified R&D tax adviser who can assess whether your projects meet HMRC's definition.

Qualifying Expenditure: What Costs Can You Claim?

Only specific categories of expenditure qualify for R&D relief:

1. Staff Costs

• Salaries, wages, and employer's NIC and pension contributions for employees directly involved in R&D
• Must be proportionate to time spent on qualifying R&D activities
• Includes directors' salaries where the director is personally performing R&D

2. Externally Provided Workers (EPWs)

• Agency workers and contractors providing labour for your R&D projects
• Under the merged scheme, claim is limited to the amount paid to the staff provider (or 65% of the payment if through a connected party)

3. Subcontracted R&D

• Costs of R&D subcontracted to third parties
• Under the merged scheme, you can claim on subcontracted R&D at 65% of the cost if the subcontractor is unconnected, or at cost if connected
• Important change from April 2024: Only the company that "controls and directs" the R&D can claim (not the company that merely performs the subcontracted work)

4. Consumable Materials

• Materials used up or transformed in the R&D process
• Electricity, water, fuel, and other utilities directly attributable to R&D
• Prototypes, samples, and test materials (where destroyed or consumed)

5. Software and Data Licences

• Software licence costs where the software is used directly in R&D
• Must be proportionate to R&D use

6. Cloud Computing and Data Costs (New from April 2023)

• Cloud computing costs directly attributable to R&D (e.g., AWS, Azure, GCP)
• Data licence costs directly attributable to R&D
• This was a major expansion — previously, only in-house computing costs qualified

Expenditure That Does NOT Qualify

• Land and property costs
• Capital expenditure (though this may qualify for capital allowances instead)
• Patent costs (separate Patent Box relief may apply)
• Interest and finance costs
• Travel and subsistence (unless directly related to R&D fieldwork)

How to Claim R&D Tax Credits on Your CT600

Step 1: Prepare Your R&D Report

Before touching the CT600, you need a comprehensive R&D report documenting:

• Projects claimed: Description of each R&D project
• Technical uncertainty: What scientific or technological uncertainty was being resolved
• Advance sought: What advance in science or technology the project aimed to achieve
• Resolution: How the uncertainty was (or wasn't) resolved
• Competent professional: Confirmation that the uncertainty wasn't readily deducible
• Expenditure breakdown: Detailed costs allocated to each project by qualifying category

This report isn't filed with the CT600, but HMRC will request it during compliance checks. You must prepare it before claiming.

Step 2: Complete the Additional Information Form (AIF)

From 8 August 2023, all R&D claims must include an Additional Information Form submitted through HMRC's online service before filing the CT600. This form requires:

• Company details and UTR
• Contact details of the person responsible for the claim
• Agent details (if applicable)
• Description of each R&D project (at least one, up to a maximum based on your claim size)
• Qualifying expenditure breakdown by category
• Industry sector (SIC code)

Critical: If you don't submit the AIF before filing your CT600 R&D claim, HMRC will reject the claim.

Step 3: Complete CT600 R&D Boxes

Key boxes in the main CT600 form for an R&D claim:

Step 4: Complete CT600L Supplementary Page

The CT600L is the mandatory supplementary page for R&D claims. It captures detailed information about your claim:

Section A: Merged Scheme Claims

• Total qualifying R&D expenditure
• Credit calculation (20% of qualifying expenditure)
• Whether claiming the credit against CT or carrying forward

Section B: R&D Intensive Claims (ERIS)

• Whether the company qualifies as R&D intensive
• Enhanced deduction calculation (86% additional deduction)
• Loss surrender for cash credit at 14.5%

Section C: Expenditure Breakdown

• Staff costs
• Externally provided workers
• Subcontracted R&D
• Consumable materials
• Software and data licences
• Cloud computing costs

Section D: Additional Information

• Claim notification reference (if required)
• Number of R&D projects
• Total qualifying expenditure

For details on all CT600 supplementary pages, see our dedicated guide.

Note: R&D claims require the CT600L supplementary page, which must be completed by a qualified R&D tax adviser alongside the main CT600.

Step 5: Adjust Your Tax Computation

Your iXBRL tax computation must reflect the R&D claim:

For merged scheme claims:

1. Include qualifying R&D expenditure in your profit and loss as normal
2. Include the 20% above-the-line credit as income in the computation
3. Show the credit offsetting your corporation tax liability
4. If loss-making, show the surplus credit calculation and any repayable amount

For ERIS claims:

1. Include qualifying R&D expenditure in your profit and loss as normal
2. Claim the additional 86% enhanced deduction as a tax adjustment (increasing the loss)
3. Show the surrender of enhanced losses for the 14.5% cash credit

Cash Credit vs. Tax Reduction: Which Should You Choose?

If your company is profitable, R&D relief simply reduces your corporation tax bill. But if your company is loss-making, you have options:

Option 1: Carry Forward Losses

Keep the R&D-related losses and carry them forward to offset against future profits. Choose this if you expect to be profitable soon and want to reduce future tax bills.

Option 2: Surrender Losses for a Cash Credit

Surrender your R&D losses to HMRC in exchange for a cash payment. This is valuable for startups and growth companies that need cash now.

Under the merged scheme (loss-making companies):

• The net cash credit is approximately 16.2% of qualifying R&D spend
• The 20% credit is taxable income; for loss-making companies, it is repayable net of a notional 19% tax charge on the credit (20% × 81% = 16.2%)

Under ERIS (R&D-intensive, loss-making SMEs):

• The company claims an 86% additional deduction, creating a surrenderable loss of 186% of qualifying spend
• Cash credit rate: 14.5% of surrenderable loss
• Effective cash credit: approximately 27% of qualifying R&D spend (14.5% × 186%)

Example (ERIS, R&D intensive company):

• Qualifying R&D expenditure: £200,000
• Additional deduction (86%): £172,000
• Total surrenderable loss: £372,000
• Cash credit at 14.5%: £53,940 (approximately 27% of the £200,000 qualifying spend)

This is a significant cash injection for a startup. It's one reason R&D-intensive tech companies should always consider R&D claims.

Option 3: Offset Against Other Tax Liabilities

You can use R&D losses to offset other corporation tax liabilities (e.g., from earlier periods via carry-back).

HMRC Compliance Checks: What to Expect

HMRC has significantly increased R&D compliance activity since 2023. The compliance rate for R&D claims is now estimated at over 20% — meaning 1 in 5 claims faces scrutiny.

Why HMRC Is Scrutinising R&D Claims

• Widespread abuse of the old SME scheme, particularly by aggressive R&D advisory firms
• Claims where the "advance in science or technology" was overstated
• Expenditure incorrectly categorised or inflated
• Missing or inadequate technical narratives

What Happens During a Compliance Check

1. HMRC sends an enquiry letter — usually within 12 months of filing
2. Information request — HMRC asks for your R&D report, technical narrative, expenditure breakdown, contracts, timesheets, and project documentation
3. Technical review — HMRC's R&D specialist reviews whether your projects meet the definition
4. Expenditure review — HMRC checks that costs are correctly categorised and proportioned
5. Outcome — HMRC either accepts the claim, reduces it, or rejects it entirely

How to Protect Your Claim

• Prepare the R&D report before claiming — not after HMRC asks for it
• Be specific about uncertainty — "it was hard" is not enough; explain what was scientifically or technologically uncertain
• Keep contemporaneous records — timesheets, project plans, meeting notes, test results
• Proportionate allocation — don't claim 100% of a developer's time if they also do non-R&D work
• Use a qualified R&D adviser for the technical narrative — this is not a DIY area
• Don't overclaim — conservative, well-documented claims survive scrutiny better than aggressive ones

Remember: The CT600L must be completed accurately alongside your main return. The R&D technical narrative and expenditure analysis should be prepared by an R&D specialist or your technical team.

R&D Tax Credits: Sector-Specific Guidance

Software & Technology Companies

The most common qualifying activities include:

• Developing new algorithms, data structures, or architectures
• Building AI/ML systems with uncertain outcomes
• Creating novel integration approaches between disparate systems
• Performance optimisation beyond current best practice
• Security solutions addressing new or emerging threat vectors

Common mistake: Claiming for routine web development, app building using frameworks, or system administration. These rarely involve scientific or technological uncertainty.

Manufacturing Companies

Qualifying activities often include:

• Developing new manufacturing processes or adapting existing ones
• Working with new materials where properties are uncertain
• Achieving tolerances or specifications beyond standard capability
• Automating processes where the technical approach is unproven

Life Sciences & Pharmaceuticals

Typically includes:

• Drug discovery and development
• Clinical trials
• Medical device development
• Biological process development

Construction & Engineering

May include:

• Novel structural engineering solutions
• Development of new construction methods
• Environmental engineering projects with uncertain outcomes
• Geotechnical challenges requiring innovative approaches

R&D Tax Credits and Other CT600 Reliefs

R&D tax credits interact with several other corporation tax reliefs:

Capital Allowances

If you purchase equipment for R&D, you can claim both:

• Capital allowances on the cost of the equipment itself
• R&D relief on the revenue costs of R&D activities using that equipment

You cannot claim R&D relief on the capital cost of the equipment — only on revenue expenditure.

Patent Box

If your R&D leads to a patent, you can claim Patent Box relief on income from the patented invention (reducing the effective tax rate on that income to 10%). R&D tax credits and Patent Box can be claimed simultaneously on different elements.

Creative Industry Tax Reliefs

If your company is in film, TV, video games, or other creative sectors, separate creative industry reliefs may be more beneficial than R&D credits. You cannot claim both on the same expenditure.

Loss Relief

R&D-enhanced losses can be:

• Carried forward indefinitely
• Carried back 1 year (or 3 years under the terminal loss rules)
• Surrendered for group relief via CT600C supplementary page
• Surrendered for a cash R&D credit

Timeline: How Long Does an R&D Claim Take?

R&D claims must be made within 2 years of the end of the accounting period. Don't wait — file promptly to get your relief or cash credit sooner.

Frequently Asked Questions

Can a small company claim R&D tax credits?

Yes — R&D tax credits are available to companies of all sizes. The merged scheme applies to all companies from April 2024. Small and medium companies that are loss-making and R&D intensive (R&D spend ≥ 30% of total expenditure) may qualify for the ERIS scheme, which provides an effective cash credit of approximately 27% of qualifying R&D spend.

Do I need to be profitable to claim R&D relief?

No. Loss-making companies can receive a cash credit from HMRC. Under the merged scheme this is approximately 16.2% of qualifying spend; under ERIS it is approximately 27% of qualifying spend. This is especially valuable for startups that haven't yet reached profitability.

Can I claim R&D tax credits retrospectively?

Yes — you can amend previous CT600 returns to include R&D claims, subject to time limits. The normal amendment window is 12 months from the filing deadline. For older periods, you can make a standalone claim within 2 years of the end of the accounting period.

What is the Additional Information Form (AIF) and when do I need it?

The AIF is a mandatory pre-notification form introduced on 8 August 2023. You must submit it through HMRC's online service before filing a CT600 with an R&D claim. It captures project descriptions, expenditure breakdowns, and contact details. HMRC will reject R&D claims without a valid AIF.

How much can I save with R&D tax credits?

For profitable companies paying 25% corporation tax, the effective saving is approximately 15% of qualifying R&D expenditure under the merged scheme. For R&D-intensive loss-making SMEs under ERIS, the cash credit is approximately 27% of qualifying R&D spend (14.5% of surrenderable losses, which equal 186% of qualifying expenditure).

Will HMRC investigate my R&D claim?

Possibly — HMRC's compliance rate for R&D claims is high (estimated 20%+). Claims are more likely to be investigated if they are large relative to company size, from sectors not traditionally associated with R&D, or if the technical narrative is weak. Well-documented claims with genuine uncertainty are unlikely to have problems.

Can I claim R&D tax credits on software development?

Yes — but only if the development involves genuine scientific or technological uncertainty. Building a standard website or app using established frameworks does not qualify. Developing novel algorithms, resolving scaling challenges beyond current best practice, or creating AI systems with uncertain outcomes can qualify.

Do I need an R&D specialist to make a claim?

It's strongly recommended. The technical narrative is the most critical part of your claim, and it requires expertise in both the relevant technology and HMRC's R&D definition. Many companies use specialist R&D advisory firms to prepare the technical narrative, expenditure analysis, and CT600L before filing their CT600.

What's the difference between the old SME scheme and the new merged scheme?

The old SME scheme (before April 2023) provided a 130% enhanced deduction — meaning a total deduction of 230% of qualifying spend — plus a 14.5% cash credit rate on the enhanced losses. From April 2023 to March 2024, the enhancement was reduced to 86% (186% total deduction). From April 2024, the merged scheme replaced both the SME and RDEC schemes with a single 20% above-the-line expenditure credit for all companies. For loss-making R&D-intensive SMEs, ERIS provides an 86% additional deduction with a 14.5% cash credit on the surrenderable loss — an effective rate of approximately 27% of qualifying spend.

Can I claim R&D tax credits on my first CT600?

Yes — there's no waiting period or minimum trading history. New companies can claim R&D relief on their first corporation tax return. In fact, HMRC's advance assurance service is specifically designed for first-time claimants.

Key Takeaways

• The merged scheme generates an effective saving of ~15% of qualifying R&D spend for profitable companies (or a cash credit of ~16.2% for loss-making companies); ERIS gives ~27% for qualifying R&D-intensive SMEs
• The merged scheme applies from April 2024 — the old SME and RDEC schemes are gone
• You must submit an Additional Information Form (AIF) before filing your CT600 with an R&D claim
• Complete the CT600L supplementary page with your expenditure breakdown — this requires a qualified R&D tax adviser
• HMRC compliance is high — prepare a detailed technical narrative before claiming
• Use a qualified R&D specialist for the technical narrative and CT600L preparation
• Claim within 2 years of the end of your accounting period — don't leave money on the table

R&D claims require specialist support. Use a qualified R&D tax adviser to prepare your technical narrative, expenditure analysis, and CT600L supplementary page. File your return within 2 years of your accounting period end to avoid losing your entitlement.

This guide is for informational purposes only and does not constitute tax advice. R&D tax credit claims are complex and HMRC scrutiny is increasing. Use a qualified R&D tax adviser for your technical narrative, expenditure analysis, and CT600L preparation.

Last updated: February 2026

Related Reading

• R&D Tax Credits for SMEs: Complete Guide to Claiming
• Accounting Periods Explained — When Does Your Corporation Tax Year Start and End?
• HMRC Free Filing Ended March 2026 — What You Need to Know