R&D tax relief has always been important for SMEs, but the next couple of years are especially significant. By now, most companies undertaking innovation will be within the new merged scheme or the enhanced R&D-intensive support regime. That means fresh chances to secure tax relief opportunities – and more scrutiny if claims are weak or poorly documented.
Despite uncertainty, business investment in innovation is holding up. UK businesses spent an estimated £50.0 billion on R&D in 2023, up 2.9% on 2022 (ONS, 2023). At the same time, HMRC’s latest statistics show around 46,950 R&D tax credit claims for 2023–24, down 26% on the previous year, with £7.6 billion of support claimed on £46.1 billion of qualifying expenditure (HMRC, 2025).
This drop in claims, alongside steady R&D investment, tells us two things. First, there are still strong tax relief opportunities for genuine innovation. Second, HMRC’s tougher approach is having a real impact, particularly on smaller and first-time claimants. As we move into 2026, many SMEs and tech-driven businesses will need to tighten their approach if they want to keep claiming safely.
We work with growing businesses across sectors, helping them structure projects, improve record keeping and prepare robust claims. This article sets out what is changing, how to identify qualifying work, what HMRC expects and how to prepare now for 2026 so you can protect and maximise your tax relief opportunities. If you want one-to-one support, our tax, accounting and advisory services are designed to give you practical, joined-up guidance.
What is changing for R&D tax relief by 2026?
From accounting periods beginning on or after 1 April 2024, the old SME and RDEC schemes are being replaced by a merged expenditure credit for most companies, alongside a separate enhanced regime for R&D intensive, loss-making SMEs. In the current tax year, this structure is the norm.
Under the merged scheme:
- The R&D expenditure credit rate is 20% for most trades.
- The credit is taxable and subject to a PAYE/NIC cap.
- The same qualifying cost rules broadly apply across the board.
Alongside this, enhanced R&D intensive support (ERIS) continues to offer extra help for loss-making SMEs whose qualifying R&D spend is at least 30% of total expenditure, with a grace period for businesses that have recently met the threshold.
What does this mean for 2026?
- The headline rates and structure are now largely settled, giving you a more predictable framework to plan around.
- HMRC is expecting better quality claims, supported by detailed technical and financial evidence, especially through the mandatory additional information form.
- The focus has shifted from borderline, low-value claims toward higher-value, better-evidenced projects.
Qualifying activities and costs under the merged scheme
The core test for R&D has not changed. Projects must seek an advance in science or technology and tackle scientific or technological uncertainty. Routine commercial work, cosmetic tweaks and off-the-shelf software configuration do not qualify.
For 2026-era claims, we expect HMRC to pay particular attention to:
- Software and data projects: Work must go beyond implementing standard tools and involve genuine technical problem-solving, such as performance breakthroughs, new algorithms or novel architectures.
- Process improvements: Projects should show a clear starting benchmark, measurable technical improvements and evidence of testing and iteration.
- Use of AI and automation: Simply adopting AI tools rarely qualifies. Using techniques in new ways or developing underlying methods may do, if the uncertainty test is met.
Typical qualifying cost categories include:
- Staffing costs: Gross pay, employer NIC and pension contributions for staff directly and indirectly involved.
- Externally provided workers: Certain agency staff, subject to specific restrictions and apportionment.
- Software and cloud services: Licences, hosting and data costs used directly in R&D work.
- Consumables: Materials, prototypes and utilities consumed in testing.
- Subcontracted R&D: Only in defined circumstances, often at a reduced rate, and with extra care needed around contracts.
The merged scheme makes the rules more consistent across company sizes, but that does not mean more generous claims by default. The businesses that benefit most are those that can clearly show how their activities meet HMRC’s definition and where the costs sit.
HMRC’s tighter checks: How to keep your claim safe
HMRC’s reform programme has a clear goal – cut down on error and abuse. The introduction of the additional information form, new compliance teams and targeted risk profiling is already changing behaviour. HMRC’s 2025 statistics show a sharp fall in the number of claims, especially smaller SME claims, even though qualifying R&D expenditure has only dipped slightly.
For 2026 claims, you should assume:
- Every claim needs a robust technical narrative written in plain English.
- HMRC will expect clear links between project descriptions, staff roles and cost breakdowns.
- Weak claims face a higher chance of enquiries, delays or adjustments.
To reduce risk, focus on:
- Project selection: Pick projects that clearly meet the advance and uncertainty tests; drop marginal ones.
- Evidence during the year: Capture meeting notes, design decisions, failed tests and technical problems as you go.
- Team involvement: Make sure competent professionals are involved in drafting the technical sections, not just the finance team or an external agent.
- Agent relationships: If you use a specialist, ask detailed questions about their methodology, risk approach and how they support enquiries.
This is not about putting you off claiming. Done properly, R&D relief remains a valuable support for innovation and cashflow. It simply needs more structure than it once did.
How SMEs can maximise their tax relief opportunities
With stronger rules in place, maximising your tax relief opportunities is about planning, not last-minute form filling.
Build these habits into your normal project management:
- Project scoping: Define intended advance, known baseline and key uncertainties at the start.
- Time recording: Ask technical staff to record time against specific R&D work packages, not just broad cost centres.
- Cost tracking: Tag relevant software, subcontractor and materials spend to projects from day one.
- Technical summaries: Write short milestone summaries when major hurdles are hit or resolved.
- Eligibility reviews: Carry out quick internal checks before you assume a project is “definitely R&D”.
Then, as you approach the claim period:
- Scheme choice: Review whether you fall under the merged scheme alone or also qualify for ERIS as an R&D intensive SME.
- PAYE cap checks: Compare your expected credit against the PAYE/NIC cap so you understand how much benefit you can actually receive.
- Drafting the AIF content: Treat the additional information form as the heart of your claim, not box-ticking; it should clearly reflect how your business is working and where the R&D sits.
Working with an adviser who understands both the technical detail and your wider plans helps you decide where to focus effort. For example, we often combine R&D claim work with wider tax planning and forecasting so you can see how potential credits fit into your cashflow and investment decisions.
Planning ahead for 2026 and beyond
As we move into the next tax year, the message is clear: there are still meaningful tax relief opportunities for genuine innovation, but HMRC expects better evidence and stronger controls. Claims that once slipped through with light documentation are now far more likely to be challenged, adjusted or delayed.
For SMEs and tech-driven companies, this is a chance to reset. If innovation is part of your growth strategy, it is worth spending time now to:
- Map out potential qualifying projects for the next 12–24 months.
- Put simple documentation and time-recording processes in place.
- Review whether you could qualify as R&D intensive, and what that might mean for investment decisions.
- Sense-check previous claims to make sure there are no weak areas that could cause issues if HMRC asks questions.
Done well, R&D relief can support product development, digital transformation and process improvement during a period when budgets are tight. Done poorly, it can create unnecessary stress, cashflow uncertainty and a greater risk of enquiries.
If you would like us to review your projects, check eligibility or help you build a clearer process around your tax relief opportunities, we are here to help. Get in touch with our team, and we will discuss your plans, numbers, and how R&D relief can support your next phase of growth.
