Sources: HMRC approach to R&D tax reliefs and R&D tax credits statistics. Claims fell 26% to 46,950 in 2023-24.
R&D tax relief for startups, on a fixed fee.
We work out whether your project qualifies, build the claim from the evidence, file it with the forms HMRC now requires, and defend it if HMRC asks questions. The price is agreed in writing before we start.
How HMRC checks R&D claims
17%of claims checked in 2023-24, up from 10%
77%of those checks ended in an adjustment
500+HMRC staff on R&D compliance, from about 100 in 2020-21
−41%first-time claimants in 2022-23, a fourth fall in a row
We prepare and file UK R&D tax relief claims for startups under the merged R&D expenditure credit and Enhanced R&D Intensive Support, for a fixed fee agreed before work starts, which does not depend on the size of the credit. That includes deciding what qualifies, costing it, writing the technical narrative, submitting the claim notification and additional information form on time, and handling any HMRC enquiry.
For several years, cold callers promised R&D relief for work that did not qualify, and some firms took a large share of the credit for a narrative written from a template. HMRC responded by checking far more claims. The number of claims then fell, and many of the founders who stopped claiming had work that did qualify.
Both followed from claims being priced as a commission on the credit. We charge a fixed fee for the professional work in a claim.
The two R&D relief routes
| Merged R&D expenditure credit | Enhanced R&D Intensive Support | |
|---|---|---|
| Who it is for | Everyone else, including profitable companies | Loss-making SMEs whose qualifying R&D is at least 30% of total relevant expenditure |
| How it works | A credit of 20% of qualifying spend, and the credit is taxable | An extra 86% deduction (186% total), surrendered for a payable credit at 14.5% |
| What you actually keep | About 15p per £1 at the main rate, 16.2p loss-making or small-profits | Up to about 26.97p per £1, if the trading loss is large enough |
| On £220,000 of qualifying spend | roughly £35,640 | roughly £59,334 |
| If the PAYE cap is exceeded | The excess is carried forward | The credit is capped, and the unused loss is carried forward |
The intensity test adds together connected companies, so a spinout that is part of a group can fail it on the group's figures. There is also a year of grace. A company that claimed the intensive route for its previous 12-month period, and met the 30% test then, can use it for the next period even if it falls below 30%.
The payable credit is capped at £20,000 plus 300% of your PAYE and National Insurance for the period, unless the company meets the exemption. The cap has most effect where engineers invoice through their own companies instead of being on the payroll. Put your own numbers through the estimator to see which route you are on and whether the cap applies.
What counts as R&D for tax
A project qualifies if it sought an advance in science or technology by resolving uncertainty that a competent professional in the field could not readily work out. The advance has to be an advance in the field. An advance for your company alone, or something that is only new commercially, does not count.
Ask your technical lead this question. On this project, was there a point where nobody knew whether it could be done at all, and you had to run experiments to find out? If yes, and somebody wrote down what was tried and what failed, you have the basis of a claim. A project that was simply a lot of hard work does not qualify.
Usually qualifies
- Algorithms with no published solution
- Performance at a scale where the standard architecture demonstrably falls over
- Integrations that required experiment, failure and redesign
- Machine learning where it was unknown at the outset whether the approach would function
- Materials and process development where iterations failed
Usually does not
- Standard web and mobile apps on mature frameworks
- Interface design and styling
- Configuring off-the-shelf software
- API integrations that worked as documented
- Data migration, and testing that was hard rather than uncertain
A fixed fee and a percentage fee compared
| Qualifying spend | Our fixed fee | 15% of the credit, merged scheme | 15% of the credit, intensive route |
|---|---|---|---|
| Under £50,000 | £1,500 + VAT | £1,495, the minimum fee | £1,495 to £2,023 |
| £50,000 – £150,000 | £2,500 + VAT | £1,495 to £3,645 | £2,023 to £6,068 |
| Over £150,000 | £3,500 + VAT | £3,645 and rising with the claim | £6,068 and rising with the claim |
Why it is a fixed fee
A percentage fee pays the adviser more for a bigger claim, at a time when HMRC is checking a large share of claims and most checks end in an adjustment.
With a fixed fee, what we are paid does not depend on how much of your work we say qualifies. Every band includes any HMRC enquiry into the claim.
The two R&D claim deadlines
- 1Claim notification — six months after the end of your period of account
If this is your first claim, or you have not claimed in the previous three years, you must notify HMRC. A company whose year ends on 31 March must notify by 30 September. If you miss it, you cannot claim for that year (HMRC guidance).
- 2Additional information form — before, or on the same day as, the company tax return
Every claim needs one. If you send the tax return first, HMRC writes to say it has removed the R&D claim from it (HMRC guidance).
- 3Then the claim itself
We cost the claim, write it and file it with the return. The technical narrative is written from what your engineers actually did.
What the fixed fee covers
- A clear answer on whether the work qualifies, before you commit to anything
- The intensity calculation that decides your route, done at the start
- The cap based on your PAYE and National Insurance worked out before the credit goes into your cashflow forecast
- Costs built from your payroll and accounting records
- The technical narrative written with your engineers
- Claim notification and the additional information form filed on time and in the right order
- Any HMRC enquiry into the claim handled
Which costs qualify
Under both routes, only these categories of cost count, and only the share of each that relates to the R&D:
- Staff. Salaries, wages, bonuses, employer pension contributions and employer National Insurance for directors and employees working on the R&D, in proportion to their time on it.
- Externally provided workers. Workers supplied by an agency or staff provider, at 65% of the payment if the provider is unconnected, or the lower of the payment and the provider's own costs if it is connected.
- Contracted-out R&D. Payments to another company or person to carry out part of your R&D, on the same 65% or connected basis.
- Consumables. Materials, water, fuel and power used up or transformed in the R&D, unless they end up in products you sell.
- Software. Licence fees for software used in the R&D, apportioned if it is also used for other work.
- Data licences and cloud computing. Data licences and cloud services, such as data storage, hardware facilities, operating systems and software platforms, used directly in the R&D. Use in supporting activities does not count.
- Clinical trial volunteers. Payments to the subjects of clinical trials.
Rent, rates, capital expenditure, land, patents and trade marks do not qualify. A cost must also have been paid before the claim is made.
R&D you pay someone else to do
Only the company that decides the R&D should be done can claim it, so if you contract out part of your own project you claim the payment, provided you can show that your company decided on and planned the work. If a customer contracts R&D out to your company, the customer normally claims it, although you can claim R&D you chose to do while delivering a contract that did not call for it. HMRC's guidance on contracted-out R&D looks at the contract and at circumstances such as who owns the intellectual property and carries the financial risk.
Work done outside the UK
Payments to contractors for R&D carried out abroad, and to staff providers for workers whose pay is not subject to UK PAYE and National Insurance, are excluded. The exception is R&D that needs conditions which are absent from the UK and wholly unreasonable to replicate here, such as geography, environment, access to clinical trial participants or legal and regulatory requirements. The cost of the work and the availability of workers do not count as conditions. It does not apply to your own employees' staff costs, or to enhanced support claims by companies registered in Northern Ireland that have not opted out.
The PAYE and National Insurance cap
Under both routes, the credit for a period is capped at £20,000 plus 300% of the company's PAYE income tax and Class 1 National Insurance liabilities for the period, with the £20,000 reduced for a period shorter than 12 months. Under the merged scheme, credit above the cap is carried forward to the next period. Under enhanced support, the company surrenders only enough loss to produce a credit equal to the cap and carries the rest of the loss forward.
The cap counts the company's own payroll taxes and those of connected companies that supply it with workers or R&D, so a team made up mainly of unconnected contractors can reach it quickly. A company is exempt from the cap if its own employees do all or most of the work of creating intellectual property, or of managing intellectual property it owns, and no more than 15% of its qualifying costs are paid to connected subcontractors and staff providers.
Worked example comparing the two routes
The figures are illustrative. A software company with no connected companies and a 12-month accounting period beginning after 1 April 2024 has income of £350,000, costs of £800,000 and a trading loss for tax of £450,000 before any R&D claim. Its PAYE and National Insurance liabilities for the year are £120,000. Its qualifying costs are:
- staff time on the R&D, £230,000
- agency engineers, £40,000 paid, of which 65% counts, £26,000
- cloud computing and data licences used in the R&D, £38,000
- software licences used in the R&D, £6,000
That makes £300,000 of qualifying costs, which is 37.5% of the £800,000 of total costs, so the company passes the 30% test. The PAYE cap is £20,000 plus 300% of £120,000, which is £380,000, so it does not limit either route.
Under the merged scheme
The credit is 20% of £300,000, which is £60,000. As taxable income it cuts the trading loss from £450,000 to £390,000. With no corporation tax to pay, notional tax at 19% takes £11,400 off the credit and carries it forward against future corporation tax, and the company is paid £60,000 minus £11,400, which is £48,600.
Under enhanced support
The extra deduction is 86% of £300,000, which is £258,000, so the loss rises from £450,000 to £708,000. The company can surrender the lower of that loss and 186% of £300,000, which is £558,000. The credit is 14.5% of £558,000, which is £80,910, and £708,000 minus £558,000 leaves £150,000 of loss to carry forward.
Comparing the results
Enhanced support pays £80,910 minus £48,600, which is £32,310 more in cash now. The merged scheme leaves £240,000 more loss to carry forward, plus the £11,400 held against future tax. That extra loss would save £45,600 of corporation tax against profits taxed at 19%, or £60,000 at the 25% main rate, but only once the company makes enough profit to use it. At these rates, and before any cap, enhanced support pays more cash in the year whenever the loss before the extra deduction is at least about 26% of qualifying costs. Our R&D tax relief calculator runs the same sums on your own figures.
The additional information form
Every claim needs an additional information form for each accounting period, sent before or on the same day as the Company Tax Return. If both go on the same day, the form must go first, and if the return arrives first, HMRC removes the claim from it. The form asks for:
- the company's tax, PAYE and VAT references and industry code, with contact details for the senior person responsible and every agent involved
- qualifying costs by category, answers about the PAYE cap and, for enhanced support, the figures for the 30% test
- for each project described, the field of science or technology, the knowledge at the start, the advance sought, the uncertainties and how the work tried to resolve them
A company with one to three projects describes all of them. With more, it describes at least three that cover at least half the qualifying costs, or the ten largest if covering half would take more than ten.
What HMRC checks and how enquiries work
For a company that is not in a group and files on time, HMRC has 12 months from receiving the return to open an enquiry, whether or not it has paid the credit.
In an enquiry, HMRC asks the company to explain in plain language the advance it was seeking, the uncertainties, why a competent professional could not readily resolve them and when they were overcome. It may ask to speak to the people who did the work, see project documents, test results and expense records, visit the site or examine prototypes. HMRC recommends keeping a competent professional's written opinion on the advance and uncertainties, the method used to work out costs, and the project's own records.
HMRC does not have to pay the credit while an enquiry is open, although it can make a provisional payment. If the company and HMRC cannot agree, HMRC closes the enquiry and amends the return, and the company can appeal. If an enhanced support claim is removed because its conditions were not met, the company has 30 days from the closure notice, or from the end of any appeal, to claim under the merged scheme instead. HMRC can charge interest on overpaid credit, and a penalty if the company did not take reasonable care. We prepare claims for a fixed fee that includes handling any HMRC enquiry, as set out on our R&D tax relief page.
Who is responsible if HMRC checks a claim
The company is responsible for its claim. If HMRC opens an enquiry, your company repays any credit that should not have been paid, with interest and any penalty, even if an adviser wrote the claim. HMRC's compliance teams recognise claims written from standard templates. A claim is easiest to defend when it is based on discussions with your engineers and on notes made while the work was done.
R&D questions founders ask
How much do you charge for an R&D claim?
£1,500 + VAT where qualifying spend is under £50,000, £2,500 + VAT from £50,000 to £150,000, and £3,500 + VAT above that. Every band covers the whole job including any HMRC enquiry. The fee is agreed before we begin and is not a percentage of your credit, so it stays the same if the claim turns out larger than expected.
Why does a percentage fee matter?
A percentage fee pays the adviser more for a bigger claim, at a time when HMRC is checking a large share of claims and most checks end in an adjustment. With a fixed fee, what we are paid does not depend on how much of your work we say qualifies.
Does my startup actually qualify?
The test is whether a project sought an advance in science or technology by resolving uncertainty that a competent professional in the field could not readily work out. The advance has to be new to the field as a whole. Work that is only new to your team, or only new commercially, does not count. Building a standard web app with mature frameworks does not qualify, while getting a system to work at a scale where the usual architecture demonstrably fails often does. We tell you whether your project qualifies before anyone starts writing the claim.
When do we have to tell HMRC we plan to claim?
If this is your first claim, or you have not claimed in the previous three years, you must send HMRC a claim notification within six months of the end of your period of account. The two-year window for amending a company tax return does not extend this. The notification deadline falls eighteen months earlier, and a claim made without the notification is invalid and cannot be put right. Talk to us before your year end.
What happens if HMRC opens an enquiry?
We handle it, and it is included in the fixed fee. We only put work in a claim that we are prepared to defend to HMRC.
Can I claim if the work was grant funded?
Yes. The merged scheme removed the old restriction on subsidised expenditure, so grant funding no longer reduces your claim the way it used to. This matters most to companies funded by Innovate UK or other grant bodies.
Can I claim for developers based overseas?
Often not, if they are contractors or agency workers. For accounting periods beginning on or after 1 April 2024, payments to contractors and for externally provided workers doing R&D outside the UK are excluded unless the work needs conditions that are not present in the UK and that it would be wholly unreasonable to replicate here, such as geography, environment, population or legal requirements. Cost and the availability of workers do not count. The company's own employees working abroad are not caught by this rule, and Northern Ireland SMEs claiming the intensive route are exempt from it unless they opt out. We check how this rule affects your team before the claim is built.
Can a loss-making startup get R&D tax relief in cash?
A loss-making company can have its R&D relief paid in cash under either route. Under the merged scheme, the 20% credit is reduced by notional tax at 19%, so the company receives 16.2p for each £1 of qualifying costs and carries the rest forward against future corporation tax. A small or medium-sized company whose R&D is at least 30% of its total costs can choose enhanced support, worth up to 26.97p for each £1 when the loss is large enough. Both payments are limited by the PAYE cap, need the company to be a going concern and can be held back while HMRC has an enquiry open.
Can we claim for contractors and agency workers?
You can usually claim 65% of what you pay unconnected contractors and agencies for R&D work, subject to three rules. For contracted-out R&D, your company must be the one that decided on and planned the work. For agency workers, only pay that is subject to UK PAYE and National Insurance counts. Work done abroad is excluded unless it needs conditions that are not present in the UK and would be wholly unreasonable to replicate, and cost or a shortage of staff does not meet that test. Unconnected contractors' payroll taxes also do not count towards the PAYE cap, so a contractor-heavy team can hit the cap.
Does advance assurance replace the claim notification?
Advance assurance does not replace the claim notification or the additional information form. HMRC's full claim advance assurance is for SMEs making their first claim with turnover below £2 million and fewer than 50 employees, and if HMRC agrees it covers the first three accounting periods. HMRC's guidance says the normal steps for claiming still apply to a company that has advance assurance, including a notification where one is needed. HMRC is also running a targeted advance assurance pilot until May 2027, which gives assurance on up to two specific areas of a claim.
How long does HMRC take to pay an R&D credit?
HMRC's practice note says it aims to pay 85% of payable R&D credits, or to contact the company about the claim, within 40 days. Where it decides not to pay because it thinks the claim may be wrong, it aims to open an enquiry within 60 days of receiving the claim. HMRC does not have to pay while an enquiry is open, though it can make a provisional payment, and it can still open an enquiry within its normal time limit after paying. It also does not have to pay while PAYE or National Insurance for the period is unpaid.
