Research and Development Tax Credits: How UK Companies Qualify, What They Can Claim, and How BrightTax Supports the CT600 R&D Computation
Merged RDEC gives 20% credit on qualifying R&D spend. Enhanced 27% for loss-making SMEs. £300k spend = £60k credit. CT600 guide.
·6 min read
Key takeaway: The UK’s R&D tax relief system was significantly reformed for accounting periods beginning on or after 1 April 2024, merging the previous SME scheme and RDEC into a single merged RDEC scheme — with an enhanced rate for R&D-intensive loss-making SMEs. For the accountants who prepare CT600 returns for company clients, the R&D computation remains one of the most technically demanding elements of the corporation tax return. BrightTax includes the merged RDEC calculation within its CT600 module, handling qualifying expenditure categories, the 20% credit rate, tax offset mechanics, and the enhanced support rate for R&D-intensive SMEs — so the R&D claim is prepared within the same CT600 workflow rather than in a separate spreadsheet.
R&D tax relief is one of the most financially significant claims available to UK companies — and one of the most frequently under-claimed, because the qualifying criteria are broader than many directors and accountants realise, and the computation is more involved than a simple deduction. For a company spending £300,000 on qualifying R&D activities, the merged RDEC claim at the 20% rate produces a £60,000 credit — a material cash benefit that offsets the corporation tax liability or, for loss-making companies, can be repaid as a cash payment by HMRC.
This guide covers the reformed R&D tax relief rules as they apply from 1 April 2024, what qualifies as R&D for tax purposes, what expenditure is allowable, and how BrightTax supports the R&D computation within the CT600.
The Reformed R&D Tax Relief Landscape from April 2024
Before the reform, two separate schemes applied:
The SME R&D Relief scheme provided an enhanced deduction of 130% (later 86%) of qualifying R&D expenditure for small and medium-sized enterprises, effectively reducing taxable profits. Loss-making SMEs could surrender losses attributable to R&D for a cash payment (the “payable tax credit”).
The R&D Expenditure Credit (RDEC) scheme applied to large companies and to SMEs that had received notified state aid for the same project. It provided a credit of 13% (later 20%) of qualifying expenditure, which offset the corporation tax liability.
From 1 April 2024, these two schemes were merged into a single scheme — the **merged RDEC** — that applies to all companies regardless of size. The key features of the merged RDEC:
Credit rate: 20% of qualifying R&D expenditure. The credit is treated as a taxable receipt of the company (so the net benefit after corporation tax is approximately 15% of qualifying expenditure for a company paying the main 25% CT rate, or up to 16.2% for a company in the marginal relief band).
Above-the-line credit. The credit appears as income in the company’s profit and loss account — increasing the accounting profit — before being offset against the corporation tax liability. This makes the value of the claim visible in the accounts rather than appearing only in the tax computation.
Enhanced rate for R&D-intensive loss-making SMEs. Loss-making SMEs where qualifying R&D expenditure represents at least 30% of total expenditure qualify for an enhanced credit rate of 27% rather than 20%. This enhanced rate recognises the additional burden on genuinely R&D-intensive startups and early-stage companies that have not yet reached profitability.
What Counts as R&D for Tax Purposes
HMRC’s definition of R&D for tax purposes is based on the Department for Science, Innovation and Technology guidelines. The core requirement is that the work must seek to achieve an advance in overall knowledge or capability in a field of science or technology — not just an advance in the company’s own internal knowledge.
Qualifying R&D activities:
– Developing new products, processes, or services where the technical challenges were not already solved by existing knowledge
– Making appreciable improvements to existing products or processes where genuine technical uncertainty had to be overcome
– Developing internal IT systems where the technical challenges involved were not routine (simply implementing an existing software product does not qualify)
– Carrying out basic research with no immediate commercial application but advancing scientific or technological knowledge
Important: the “competent professional” test. The uncertainty being resolved must not have been resolvable through straightforward application of existing techniques by a competent professional in the relevant field. If a developer could look up the solution in standard documentation, it is probably not qualifying R&D. If the solution required original problem-solving that was not predictable from existing knowledge, it very likely qualifies.
Non-qualifying activities. Commercial and financial risk management, market research, humanities and social science research, and routine maintenance or upgrade of existing systems do not qualify.
Subcontracted R&D. From 1 April 2024, the merged RDEC restricts claims for subcontracted R&D expenditure: the contracting company can only claim in respect of work subcontracted to unconnected parties, subject to the new overseas restrictions (overseas subcontracted costs no longer qualify except in specified circumstances where it is not reasonably practicable to carry out the R&D in the UK).
Qualifying Expenditure Categories
The merged RDEC applies to qualifying expenditure in these categories:
Staffing costs. The salaries, employer National Insurance, and pension contributions of employees who are directly and actively engaged in R&D activities. Where employees split their time between R&D and non-R&D work, only the R&D proportion qualifies — this is typically evidenced through time recording.
Consumable items. Materials and utilities directly consumed or transformed in the R&D process. Software licences used directly in the R&D activities also fall within this category under the merged scheme.
Externally provided workers (EPWs). Where the company uses workers provided by a third party (not directly employed), 65% of the agency or staff provider invoice cost qualifies. The EPW must be subject to the direction and supervision of the claimant company.
Subcontracted R&D. For unconnected subcontractors, 65% of the cost qualifies (the haircut reflects that the subcontractor will not separately be able to claim R&D relief on the same expenditure). For connected parties, the treatment is more restricted.
Cloud computing and data costs. Cloud computing costs directly attributable to R&D activities qualify under the merged scheme — a specific inclusion following HMRC’s recognition that cloud infrastructure costs are increasingly a significant part of software and technology R&D budgets.
How BrightTax Supports the R&D Computation in the CT600
The R&D claim is part of the corporation tax computation — it is not a separate filing but a component of the CT600 return. BrightTax includes the merged RDEC calculation within its CT600 module:
Qualifying expenditure input. BrightTax’s R&D module captures the qualifying expenditure by category — staffing costs, consumables, EPWs, subcontracted R&D, and cloud/data costs — with a breakdown that forms the underlying schedule supporting the claim.
Credit calculation. BrightTax calculates the 20% RDEC (or 27% enhanced rate where the R&D-intensive SME criteria are met) and reflects it as an above-the-line credit in the CT600 computation. The credit is treated as taxable income and offset against the corporation tax liability within the computation.
Loss-making companies — cash repayment. Where the company has no CT liability to offset the credit against, BrightTax calculates the amount repayable by HMRC after the credit is used first against any other tax liabilities of the company, then repaid in cash (subject to PAYE cap restrictions for the enhanced scheme).
CT600 boxes. The R&D figures are populated in the correct CT600 boxes for HMRC submission, with the RDEC amount, the credit rate, and the resulting tax adjustment all disclosed in the statutory return.
Integration with BrightAccounts
Frequently Asked Questions
Does every software company automatically qualify for R&D tax credits?
Does every software company automatically qualify for R&D tax credits?
Not automatically — the key test is whether the development work involved genuine technical uncertainty that was not solvable through straightforward application of existing techniques. Many software projects involve only routine development (implementing known patterns, using existing frameworks in standard ways) which does not qualify. Projects that involved novel algorithmic approaches, unsolved technical integration challenges, or development at the frontier of what was technically achievable are more likely to qualify. An accountant preparing the CT600 should discuss the nature of the development work with the client before preparing the R&D claim.
What records does HMRC expect to support an R&D tax credit claim?
What records does HMRC expect to support an R&D tax credit claim?
HMRC expects contemporaneous evidence that the R&D activities occurred and that the expenditure was incurred on qualifying activities. This typically includes: a description of the R&D project and the technological uncertainties being addressed, time records (timesheets or similar) for employees whose staffing costs are claimed, payroll records supporting the salary figures, and evidence of subcontractor or EPW costs. HMRC has increased its scrutiny of R&D claims significantly since 2022 and has introduced mandatory advance notification for first-time claimants — this notification must be submitted before the end of the accounting period.
What is the PAYE cap on R&D repayments?
What is the PAYE cap on R&D repayments?
For the enhanced rate scheme (R&D-intensive SMEs), the amount of RDEC credit that can be repaid in cash is capped at three times the company’s total PAYE and NIC liability for the accounting period. This prevents companies with very small UK payrolls from claiming large cash repayments based on overseas workers. The 20% standard merged RDEC does not have the same PAYE cap structure as the old SME payable credit, but is instead limited by the requirement to use the credit first against other tax liabilities before repayment.
Can a company claim R&D relief for work done by overseas subsidiaries or subcontractors?
Can a company claim R&D relief for work done by overseas subsidiaries or subcontractors?
From 1 April 2024, the merged RDEC generally restricts qualifying subcontracted R&D to UK-based work (with limited exceptions where it is not reasonably practicable to carry out the activities in the UK due to regulatory, geographical, or environmental reasons that require the specific overseas location). R&D carried out by connected overseas companies is not generally eligible. This is a significant change from the position under the previous SME scheme, which allowed overseas qualifying expenditure, and practices should review the treatment of any overseas R&D in clients’ claims.
Is BrightTax suitable for preparing R&D claims for all company sizes?
Is BrightTax suitable for preparing R&D claims for all company sizes?
BrightTax supports the merged RDEC calculation for companies across the SME and larger company range. For very large companies with complex group R&D claims, multiple qualifying projects at different stages, or significant connected-party subcontractor arrangements that require detailed analysis, specialist R&D tax advisers and tools like Alphatax may be used alongside b for the CT600 submission mechanics. For the typical owner-managed company or SME R&D claimant, BrightTax’s built-in R&D computation handles the claim within the standard CT600 workflow.
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BrightTax includes merged RDEC calculations within its CT600 module — handling qualifying expenditure categories, the 20% credit rate, above-the-line credit mechanics, and the enhanced 27% rate for R&D-intensive SMEs. Find out more about BrightTax or speak to your account manager about corporation tax support.
This content may have been developed with the assistance of AI tools. Content is reviewed by a member of the Bright team before publication. Guidance on legislation can be obtained from your industry body.
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