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Are you building software, developing a fintech platform or solving a difficult technical problem , but watching your cash runway disappear faster than expected?
You could be leaving valuable government funding on the table.
For eligible UK technology startups and SMEs, R&D tax credits can provide non-dilutive cash support that helps fund engineering hires, product development and further experimentation without giving away another percentage of your company.
In 2026, the key question is no longer simply whether your project qualifies as research and development. You also need to understand whether your company falls under the merged R&D scheme or the more generous Enhanced R&D Intensive Support scheme, known as ERIS.
The crucial threshold is 30%.
Research and development tax relief is a Corporation Tax relief designed to encourage companies to invest in innovation.
If your company carries out qualifying R&D, you may be able to claim relief on certain costs connected with the work. Depending on your company’s size, profitability and R&D intensity, the relief may:
This can be a vital lifeline for a startup that is still loss-making but investing heavily in technology.
However, R&D tax relief is not a reward for simply having an innovative idea. HMRC expects you to demonstrate that your project sought an advance in science or technology and involved genuine technological uncertainty.
For accounting periods beginning on or after 1 April 2024, the old SME and RDEC schemes have been replaced by two main routes:
The qualifying R&D rules are broadly aligned, but the calculation and potential benefit differ.
The merged scheme is generally available to companies that:
The merged scheme provides a 20% taxable expenditure credit on qualifying R&D expenditure, subject to the relevant rules and restrictions.
Because the credit is treated as taxable trading income, the final benefit depends on your Corporation Tax position and how the credit is used.
ERIS is aimed at loss-making SMEs that invest heavily in R&D.
To qualify, your company generally needs to:
ERIS allows a company to deduct an additional 86% of qualifying R&D costs, on top of the normal 100% deduction. This creates a total deduction of 186%.
A qualifying company may also claim a payable tax credit worth up to 14.5% of the surrenderable loss. Where the full enhanced deduction creates a surrenderable loss, this can equate to approximately £27 of cash support for every £100 of qualifying R&D expenditure, before applying restrictions such as the PAYE cap.
The exact amount depends on your accounts, tax position, connected companies and eligible costs.
The calculation is straightforward in principle:
R&D intensity = relevant qualifying R&D expenditure ÷ total relevant expenditure × 100
For example, imagine your startup has:
Your R&D intensity would be:
£180,000 ÷ £500,000 × 100 = 36%
That is above the 30% threshold, so your company could meet the intensity condition , provided it is also an eligible SME and loss-making.
But the calculation can become more complex where you have:
Connected companies may need to be included in the assessment, and HMRC expects any allocation between periods to be reasonable, consistent and explainable.
There is also a limited grace period. If your company met the intensity condition in the previous 12-month accounting period and made a valid relevant claim, you may still qualify for ERIS when your intensity temporarily falls below 30%.
The key is not to guess. Calculate the ratio before preparing your claim.
There is a common misconception that R&D tax credits are only available to laboratories or companies developing entirely new inventions.
In reality, many UK technology businesses undertake qualifying R&D as part of normal product development.
Your project may qualify if it seeks an advance in science or technology and attempts to resolve technological uncertainty that a competent professional could not readily solve using publicly available knowledge.
Examples might include:
The project does not necessarily need to succeed. Failed approaches, abandoned prototypes and unresolved technical challenges may still form part of qualifying R&D , provided the underlying work meets HMRC’s criteria.
What matters is the technical challenge, not the marketing language around the product.
The main qualifying cost categories can include:
You may be able to claim for the proportion of employee costs relating to qualifying R&D, including relevant salary, employer National Insurance and employer pension contributions.
A developer who spends 70% of their time resolving technical uncertainty may not be wholly engaged in R&D. Your claim should reflect the actual position.
Certain agency workers and staff-provider workers may qualify where they are directly involved in the R&D activity. Specific conditions apply, so retain contracts, invoices and evidence of the work performed.
Some subcontracted R&D costs can qualify, although the rules changed for accounting periods beginning on or after 1 April 2024.
You need to consider who initiated and planned the R&D, who bears the financial risk and whether the work was subcontracted under the relevant conditions. Do not assume that every payment to a developer or technical consultant is automatically eligible.
Software licences and cloud computing costs may qualify where they are directly used in qualifying R&D. This could include development environments, testing infrastructure, simulation tools and cloud resources used during technical experimentation.
General software used across the whole business is not automatically claimable.
Materials or components used up or transformed during the R&D process may be eligible. Utilities such as power and water may also qualify in appropriate circumstances.
The strongest claims connect each cost clearly to the underlying project.
Your claim needs to tell a coherent story.
For each significant project, record:
Useful supporting evidence may include technical design documents, sprint tickets, GitHub records, testing logs, project plans, research notes, invoices, payroll reports and board papers.
You do not need to produce paperwork for the sake of paperwork. But your evidence should have been created during the project and should show how the work actually progressed.
HMRC now requires an Additional Information Form to be submitted before the Corporation Tax return containing the R&D claim. First-time claimants, and companies that have not claimed in the previous three years, may also need to notify HMRC of their intention to claim within six months of the end of the accounting period.
Missing these steps can put an otherwise valid claim at risk.
HMRC scrutiny has increased, and weak claims can create unnecessary cost and disruption.
Common problems include:
The beauty of a well-prepared claim is that it is not only more defensible , it also gives you a clearer view of where your development budget is going.
A successful claim could release cash at a pivotal moment.
You might use the funds to:
R&D tax relief is not a substitute for sound cash-flow planning. But it can be an important part of your funding strategy , especially when you are trying to reach product-market fit or prepare for Series A investment.
At Price & Accountants, we help UK technology startups identify qualifying R&D activity, allocate costs, assess the 30% intensity condition and prepare claims that connect technical evidence with accurate financial information. Our wider startup support approach is designed to help you move from early-stage operations towards investment readiness.
You can also explore our R&D tax credit service and related advisory and tax planning support.
If you are developing technology, employing technical staff and operating at a loss, do not assume that R&D tax relief is too complex or only available to larger companies.
The 30% intensity rule could be the difference between claiming under the standard merged scheme and accessing enhanced support through ERIS.
But the calculation must be correct, and the claim must be supported by evidence.
We encourage you to review your projects and expenditure before your Corporation Tax return is prepared. Speak to Price & Accountants to assess whether your business may qualify for R&D tax credits UK 2026, determine whether ERIS could apply and build a claim that helps fund your next stage of growth : without unnecessary dilution.
This article provides general information and does not constitute tax advice. R&D relief depends on your specific facts, accounting period and the legislation in force. For the latest requirements, refer to the relevant HMRC guidance.
