The UK’s Research and Development (R&D) tax relief scheme has undergone a series of significant transformations since 2019, aimed at simplifying the R&D tax regime boosting innovation and attempting to curb abuse of the scheme. With more than two decades since the scheme’s inception in 2000, we document the most recent key milestones and changes to the scheme and the current state of play. Further, we share potential red flags and best practices for claimants and advisors and discuss how SecuRD® can get you ready for the merged scheme.
What changes have been made to the scheme?
A variety of changes have occurred including legislative updates, pivotal Tax Tribunal (court) decisions, and enhanced compliance measures which are impacting how businesses claim relief as detailed below.
Recent Legislative Milestones
- Finance Act 2019
- Reintroduction of a PAYE/NIC “cap” (effective April 2021) to curb abuse of SME cash credits.
- Finance Act 2023
- Rate reset (from 1 April 2023): SME additional deduction cut to 86% (from 130%); SME payable credit trimmed to 10% (from 14.5%) ; RDEC uplifted to 20% (from 13%).
- New “R&D-intensive” SME credit of 27% for loss-making companies with ≥40% R&D qualifying R&D spend intensity.
- Introduced claim notification for periods beginning on or after 1 April 2023 with some exceptions.
- Introduced additional information form filing requirements for all claims filed from 8 October 2023 with no exceptions.
- Finance Act 2024
- Accounting periods beginning 1 April 2024 move to a single 20% RDEC-model credit for all companies.
- Loss-making R&D-intensive SMEs can elect for the enhanced 27% credit through ERIS with ≥30% qualifying R&D spend intensity from 1 April 2024.
- Increase in eligible costs (data licences, cloud computing) with tighter rules on overseas subcontracting/EPWs —only allowed where replication in the UK is “wholly unreasonable”.
- Aim of changes was to simplify the R&D tax regime and boost innovation.
Looking ahead: Finance Bill 2025-26
- To curb abuse further, draft clauses require tax advisers to register with HMRC and meet minimum standards from 1 April 2026. This will apply to anyone interacting with HMRC on clients’ tax matters, R&D or otherwise.
What Key Tribunal Decisions are Shaping Practice within R&D?
Following a slow build-up of R&D related Tax Tribunal cases from the inception of the UK R&D scheme in the year 2000, with only 4 cases up to 2018 followed by 19 cases to date (including a judicial review), the most recent court hearings on the contentious issue of contracted out R&D are likely to arise in another form under the Merged scheme:
Year | Case | Core Issue | Outcome | Practical Take-away |
2023 | Quinn (London) Ltd | Was the R&D “subsidised”? | Taxpayer win | Genuine self-funded R&D within a customer project can qualify |
2024 | Collins Construction Ltd v HMRC | “Contracted-out” R&D definition | Taxpayer win | HMRC’s narrow view rejected; SME still eligible. |
2024 | Stage One Creative Services Ltd | Discovery assessments & contracted/subsidised R&D | Taxpayer win | Well prepared R&D reports reduce discover assessment risk. HMRC guidance change (2021) could not be applied retrospectively. |
2024 | Tills Plus Ltd | Evidence of advancement and payment requirement | Mixed; HMRC partly successful | Robust technical evidence remains essential and evidence of payment. |
While subsidy rules have been abolished under the new R&D tax regime, the question of when a claimant expected or contemplated R&D where it is part of a supply chain may rest on similar evidential thresholds as above.
The first criminal case against an accountancy firm – Bennett Verby, under Section 45 of the Criminal Finances Act 2017 – has a provisional trial date set for 27 September 2027 and has been widely reported. Alleged offences include failure of companies or partnerships in the UK to stop their employees or associates from facilitating tax evasion regardless of where this evasion occurred. R&D claims and bounce back loan applications are reported to be central to the case with the firm allegedly not doing enough to prevent the tax evasion.
Compliance Climate & Enquiry Risk
HMRC’s 2022-23 “risk-based” campaign has pushed the enquiry rate sought by HMRC on R&D claims to 20%. Common triggers are:
- Large spikes in claim size or increase in claims from non-traditional sector companies.
- Boilerplate technical narratives.
- Advisors with a history of non-compliant claims.
- Other risk-based criteria which we reliably understand to be at least 500,000 red flags using ‘Connect’, an Artificial Intelligence behemoth of a system apparently created by HMRC.
The forthcoming mandatory adviser registration will give HMRC clearer visibility of agents, leveraging current additional information/advanced notification forms and may concentrate scrutiny on unregistered or firms classified as high-risk.
What Lies Ahead (2025-26)
- Enhanced data-sharing between HMRC and Companies House will flag mismatches between R&D claims and statutory accounts. This coincides with significant changes in company filing requirements at Companies House from 2026 onwards.
- The HMRC Tax Agent registration regime, expected in 2026, may pave the way for a graded “trusted adviser” status where compliant advisers are categorised by HMRC as “nice” on their “naughty or nice list”. This could potentially shorten processing times on any R&D Tax claims the agent submits. This is proposed to include:
- minimum competency and ethical standards,
- clear personal tax affairs requirements for advisors and senior managers and
- enhancement of HMRC powers to exclude non-compliant advisers
Best Practice Playbook for Companies & Advisers
- Map projects to the correct regime year-by-year. Transitional periods (pre-April 2024 SME vs post-April 2024 merged scheme) require parallel calculations if two-year claims are retrospectively prepared at the same time.
- Evidence first, claim later.
- Maintain contemporaneous project logs, design iterations, failed tests, and staff timesheets.
- Link each cost line to activities meeting DSIT Guidelines.
- Leverage secure AI solutions to facilitate enhanced record keeping and claim management
- Subcontracting safeguards.
- Clearly document your R&D policy, legal reality, financial reality and economic reality of contracts, who decides to take the technical risk and who owns IP to rebut “contracted-out” challenges.
- For overseas work, retain proof that UK replication was impractical.
- Pre-notification & digital forms.
- Companies claiming R&D tax relief for accounting periods starting on or after 1 Apr 2023 must notify HMRC within six months of period-end if they have never claimed before or have not claimed in the last three years, subject to timing of R&D amendments for periods straddling April 2023.
- Agent due diligence.
- Engage advisers who are members of a recognise professional body such as ICAEW, ICAS, ACCA, CTA, CIMA or equivalent professional bodies, with sufficient professional indemnity insurance, and prepared for HMRC’s 2026 registration test.
- Insist on written methodologies and demonstration of capabilities to provide enquiry-defence support.
- Audit trail of key R&D decisions through systematically incorporating an R&D policy across the business to filter down to boots on the ground’s recording systems.
SecuRD® – get ahead of the legislation with InnoFund
Timestamp R&D decisions – SecuRD® can be incorporated into internal video meetings and, outside of the meeting, clients can analyse documents, meeting notes or audio files through our platform.
Trusted Partner – to help prepare, review or sense-check your R&D ecosystem, including contractor relationships’ surrounding circumstances.
Review of contracts – bulk upload your contracts with clients, suppliers and contractors involved in the R&D project to our SecuRD® platform.
SecuRD® platform – understand any risks you might face in claiming a project under the merged scheme while adding value to your own internal projects.
SecuRD® is InnoFund’s claim methodology and secure machine learning tool that has been shaped from experience in defending arguably the most R&D Tax claims in the UK. Our technology identifies when a decision about R&D occurs. It also helps to define what the baseline of science and technology is at the time the decision to carry out R&D occurred or is contemplated, helping to support your technical leads with access the latest advances publicly available as a benchmark.
With near real-time actionable prompts and automation of previously manual processes we believe it is the safest and most effective way to claim R&D Tax credits under the merged scheme.
Key takeaways
The R&D regime has shifted from a user growth focused incentive scheme to a compliance-driven system. Well-prepared claimants armed with good level of evidence, which is still commercially relevant, understanding how contractual positions/surrounding circumstances impact on a claim and relying on accredited/reputable advisers will minimise enquiry risk and continue to unlock valuable R&D incentives despite the post-2019 tightening of the regime.
Embracing an enhanced compliance culture will push internal R&D further. Investing in both the documenting of R&D and competent professional support will be necessary to successfully navigate this transformed landscape to fund your innovation.
InnoFund’s DNA is SecuRD®. Contact us to discuss how your company can benefit from it.
