R&D tax reliefs for tech companies: What can you actually claim?

When a tech company spends months getting a system to do something the available tools could not, the founders often hear that the work might qualify for R&D tax reliefs. Many then assume the process is too complicated or that software work will not count and they never look further.

You can claim for the costs of work that tried to resolve a scientific or technological uncertainty, provided your company is chargeable to UK Corporation Tax. For a software business, that usually covers the time UK staff spend on the uncertain parts of a project, some contractor costs and the software, data and cloud computing used directly in that work. The claim can be worth a significant sum, particularly for a loss-making company, although the current rules on overseas contractors, founder pay and deadlines decide how much of it you keep.

Understanding how HMRC separates R&D from routine development, which costs still qualify and how the credit is worked out will help you judge what your company can realistically claim before you commit time to it.

What are R&D tax reliefs and who can claim them?

R&D tax reliefs are government incentives that return part of a company’s research and development spending, either by reducing its Corporation Tax bill or through a cash payment. HMRC administers them under the Corporation Tax rules and the government’s guidelines on what counts as R&D.

Only companies chargeable to UK Corporation Tax can claim, so sole traders and partnerships sit outside the reliefs. The company also needs to be carrying on a trade.

The project itself has to seek an advance in science or technology. Science in this context means the systematic study of the physical and material universe, while technology means the practical application of scientific principles. Mathematical advances have counted as science since April 2023. Advances in the arts, humanities and social sciences, including economics, do not qualify.

Does software development qualify for R&D tax relief?

Software development qualifies when a project tries to resolve a technological uncertainty that a competent professional in the field could not resolve using existing knowledge. Most day-to-day product work does not meet that test, although the harder engineering problems inside a product often do.

The government’s guidelines on the meaning of R&D require the advance to be in the overall knowledge or capability of the field. Solving a problem for the first time inside your own company is not enough if others in the industry already know how to do it.

The examples below, drawn from HMRC’s guidance on software, show what typically qualifies and what does not:

A fintech team trying to flag fraudulent card payments within milliseconds finds that none of the published models it tests can reach that speed without missing too many cases. The months its engineers spend designing and testing new model architectures to close that gap fall within R&D. The dashboard they later build for customers to review flagged payments does not, because a competent developer could build it with standard tools.

A project that does not achieve its aim can still qualify. The guidelines state that R&D takes place even when the advance sought is not achieved or only partly realised, so the record of approaches that did not work forms part of the evidence for a claim.

What costs can tech companies claim?

You can claim the costs directly attributable to the R&D work, which for most tech companies means staff, some contractors, software and the data and cloud services used in the project.

Qualifying costs and the limits on each:

Founder pay has a larger effect on tech claims than most people expect. Staff costs cover salaries, employer National Insurance and pension contributions, so a founder who takes most of their income as dividends adds little to the claim even when they are the lead engineer.

Cloud spending needs to be divided between R&D and everyday operations. Data licences and cloud computing qualify only when they are used directly in resolving the uncertainty. In the fraud detection example, the compute used to train and test new models belongs in the claim, while the cost of running the live service for customers does not. Tagging cloud resources by project from the outset makes the division much easier to evidence.

The merged scheme and ERIS explained

For accounting periods beginning on or after 1 April 2024, R&D tax reliefs are given through two routes. The one that applies depends on whether your company makes a profit and how much of its spending goes on R&D.

The merged scheme is the route most companies use. It gives a credit calculated as a percentage of qualifying costs, which is treated as taxable income. A profitable company uses the credit to reduce its Corporation Tax bill, while a loss-making company can receive it as cash if it meets the conditions.

ERIS is aimed at loss-making SMEs whose spending is weighted heavily towards R&D, with R&D costs making up at least 30% of total relevant expenditure. It gives an extra deduction on qualifying costs and allows the company to exchange the resulting loss for a cash payment that is not taxed.

Tech companies often clear the ERIS threshold because salaries make up most of their costs, although a hiring push or higher marketing spend can push them back under it the next year. That makes both routes worth testing each year, rather than carrying over last year’s answer.

How is the R&D tax credit calculated?

The credit is based on your qualifying R&D spend, with the rate and the amount you keep depending on the scheme and on whether your company is profitable. The worked example below applies £100,000 of qualifying spend to three common situations.

Worked example for £100,000 of qualifying R&D spend:

The first line reflects the fact that the merged scheme credit counts as income, so a company paying the 25% main rate of Corporation Tax keeps three quarters of it. The second reflects the notional tax deduction HMRC applies before paying the credit out. It is made at the 19% small profits rate for loss-making companies and those with smaller profits, while companies with profits taxed at the main rate have it made at 25%. The ERIS line assumes the company’s trading loss is at least as large as the enhanced figure, so the full amount can be surrendered.

Cash payments under both routes are capped at £20,000 plus 300% of the company’s PAYE and National Insurance liabilities for the period, with some exemptions. A company with a small payroll, for example one whose founders are paid mainly through dividends, can find that the cap reduces the cash it receives. Under the merged scheme, any amount above the cap is carried forward to the next period, so it is deferred rather than lost. Whether the cash actually arrives also turns on the company being a going concern and while an open HMRC enquiry does not cancel the credit, it can hold up payment until it is settled.

How to claim R&D tax relief in 2026

The claim itself goes on your Company Tax Return, but two earlier steps have to be completed first and missing either one can invalidate the claim.

1. Notify HMRC that you intend to claim. A company claiming for the first time, or one that has not claimed in the previous three years, has to do this within six months of the end of the accounting period. The deadline falls well before the tax return is due, which is why it catches so many first-time claimants out.
2. Submit the additional information form. This reaches HMRC before or on the same day as the Company Tax Return, and sets out, for each project, the technical starting point, the advance the team was aiming for, the uncertainties it faced and how it tried to resolve them.
3. Make the claim on your Company Tax Return, generally within two years of the end of the accounting period.

SMEs that want certainty before they claim can apply to HMRC for advance assurance. First-time claimants can seek it on their first claim and HMRC applies the same agreement to the next two accounting periods as long as the work stays materially the same as agreed. Since May 2026, a targeted advance assurance pilot has also let SMEs make up to two applications, each covering one project and one specific area, such as whether a project meets the definition of R&D or how overseas costs are treated.

Short technical notes kept while the work is under way, covering what each project set out to achieve and why existing approaches fell short, will answer most of HMRC’s questions alongside time records and cloud invoices tagged by project.

Mistakes that reduce or invalidate tech claims

Beyond a missed notification, four mistakes account for many of the problems in tech claims.

1. Including offshore contractors:
   Payments to overseas contractors and overseas agency workers generally no longer qualify. HMRC’s guidance on overseas restrictions accepts them only where the R&D needs conditions that do not exist in the UK and it specifically rules out lower costs or easier hiring as reasons.
2. Claiming work that belongs to a client:
   Under the merged scheme, relief generally goes to the company that decides to undertake the R&D. So a development agency building a product for a client that intended R&D to take place normally cannot claim for that work, while the client usually can.
3. Claiming the whole project:
   R&D starts when work to resolve the uncertainty begins and ends when the uncertainty is resolved or the work stops, so the months spent polishing, launching and supporting a finished feature usually fall outside the claim.
4. Describing commercial goals instead of technical ones:
   A project described in terms of market opportunity or customer demand gives HMRC nothing to assess. What it needs on the additional information form is the technical baseline and the specific uncertainty the team set out to overcome.

Planning your next R&D tax reliefs claim

R&D tax reliefs can extend a tech company’s runway when it needs it most, provided the claim reflects the rules as they now stand. Much of the value is settled well before the return is filed, through how founders are paid and where contractors are based.

At Rise Accounting, we help tech founders identify the projects that qualify, choose between the merged scheme and ERIS and prepare claims that stand up to HMRC’s questions. If you would like to talk through a first claim or review how your current setup affects the next one, our team is here to help. Get a free consultation.

Frequently asked questions

Can my pre-revenue start-up claim R&D tax relief?

Yes, as long as your company has started trading and is registered for Corporation Tax. Having no revenue does not stop you claiming and a loss-making company can receive the relief as cash, which is often when it makes the most difference.

Is the R&D tax credit taxable?

Under the merged scheme it is, so the amount you keep after tax is lower than the headline credit. The ERIS cash payment is not taxed, which is one reason it tends to be worth more for companies that qualify.

Do directors’ salaries count towards an R&D claim?

They can, for the time your directors spend working directly on the R&D. Their salary, employer National Insurance and pension contributions can all be included, although dividends and benefits in kind cannot.

Can I claim for work done by freelancers?

Yes, if they work on the R&D itself and the work is carried out in the UK. How much of their cost counts depends on whether they are engaged as subcontractors or supplied through an agency, since only part of an unconnected subcontractor’s fee qualifies.

How far back can I claim R&D tax relief?

You generally have two years from the end of an accounting period to make or amend a claim. For a first claim, check the six-month notification deadline before anything else, because missing it rules the claim out. If you would like help working out what you can still claim, feel free to reach out to us.