Four Years That Changed UK R D Tax Credits Forever
From EditThis.info
Picture a time when claiming R&D tax relief was a simple, repetitive process with predictable outcomes.
Now, fast forward to 2025, and it feels like the landscape has shifted completely.
Between 2021 and 2024, the UK government made significant changes to the R&D tax system, from reintroducing PAYE caps to merging the SME and RDEC schemes.
As R&D tax experts, Hamilton Wood & Company has been at the forefront of these changes, helping businesses stay on track.
In this article, we’ll take you through the major reforms of the last four years and what they mean for businesses like yours.
Step 1: HMRC Reinforces Cash Credit Caps (2021)
The first notable change happened in April 2021 when the PAYE/NIC cap for cash credits for SMEs.
This cap limited the amount of cash credit available to SMEs to £20,000 plus three times the company’s PAYE and NIC liabilities.
This policy was a direct response to concerns over abuse of the R&D tax system by businesses without substantial R&D activities.
Step 2: April 2023 – Reduced Support for Many, Enhanced Support for R&D-Intensive SMEs
In April 2023, major cuts to R&D relief for SMEs took effect, which impacted the benefit many companies could claim.
For SMEs, the additional deduction was reduced from 130% to 86%, while loss-making companies saw a drop in the cash credit from 14.5% to 10%.
Many SMEs saw their benefits fall from around 33% back to approximately 18.6% of qualifying R&D expenditure.
However, for R&D-intensive SMEs, the changes were less severe.
For R&D-heavy SMEs, they could still benefit from the higher 14.5% cash credit rate, provided R&D constituted at least 40% (later 30%) of their total spend.
Step 3: August 2023 – The New Paperwork Requirement
Another change came in August 2023, when new paperwork requirements were enforced.
From that date, every R&D claim needed to be supported by an online Additional Information Form (AIF), which must be submitted before the CT600 tax return.
If you fail to submit the AIF or miss the filing deadline, your claim could be rejected.
On top of the AIF, businesses that haven’t claimed R&D relief in the past three years must pre-notify HMRC of their intent to claim.
This added requirement has made the process of claiming R&D relief more structured and time-sensitive.
Step 4: April 2024 – The Merged Scheme and New Rates
Starting 1 April 2024, the SME and RDEC schemes will merge into a single R&D Expenditure Credit (RDEC)-style scheme.
Under the new merged system, most businesses will receive a 20% taxable credit on qualifying R&D expenses.
This results in a net benefit of approximately 15% for companies paying the standard 25% Corporation Tax rate, though this varies slightly depending on the tax band.
R&D-intensive SMEs will still benefit from Enhanced R&D Intensive Support (ERIS), maintaining the more generous rates for these companies.
Step 5: Overseas R&D – No More Easy Claims (April 2024)
The treatment of overseas R&D costs will also change significantly starting 1 April 2024.
From this date, most payments to overseas contractors and externally provided workers will no longer qualify unless they meet a strict set of conditions.
This change will push businesses to carry out more R&D within the UK or to justify why the work needs to be done abroad.
Where Hamilton Wood & Company Fits In
The changing landscape can be daunting for many businesses, especially with all the new rules and processes.
Hamilton Wood & Company helps you navigate the complexities of R&D tax credits.
We support businesses in identifying R&D activities, structuring their claims, and ensuring compliance with the evolving rules.
If you need help understanding how these changes affect your claim, or if you want to make sure your claim is fully compliant, we’d be happy to help.
