Can I claim for research and development costs as a small business?
Answered 11 March 2026
Research and Development (R&D) Tax Relief for Small Businesses
Yes, as a small business you can claim R&D tax relief — but this relief is only available to companies subject to UK corporation tax (not sole traders or partnerships). Here is a comprehensive overview:
What the Law Says
Two schemes are available under Part 13 of the Corporation Tax Act 2009 (CTA 2009):
-
Enhanced R&D Intensive Support (ERIS) – for loss-making, R&D-intensive SMEs for accounting periods beginning on or after 1 April 2024. The relief is an additional deduction of 86% of qualifying Chapter 2 expenditure.
-
Old SME Scheme – for accounting periods beginning before 1 April 2024, SMEs could claim an additional deduction (rising over time to 130% of qualifying expenditure from 1 April 2015).
Qualifying expenditure under the SME scheme includes:
- Staffing costs
- Consumable/transformable materials
- Software and data licences
- Cloud computing services
- Externally provided workers
- Subcontracted R&D
For staffing costs, only costs paid to directors or employees directly and actively engaged in relevant R&D are attributable. Where a person is only partly engaged in R&D, an appropriate proportion is allowed.
For subcontracted R&D under the SME scheme, where the subcontractor is unconnected, the company can claim on 65% of the payment made to the subcontractor.
HMRC Guidance / Practice
Eligibility criteria — are you an SME?
To qualify for the SME R&D scheme, your company must:
- Employ fewer than 500 persons, and
- Have an annual turnover not exceeding €100 million, or an annual balance sheet total not exceeding €86 million
HMRC's eligibility checklist also asks:
- Fewer than 500 full-time staff?
- Turnover not more than €100m or balance sheet less than €86m?
- Has the company received any notified State aid grants for the R&D project? (If yes, SME relief is blocked — but RDEC may still be available)
Current rates at a glance:
| Scheme | Additional Deduction | Payable Tax Credit |
|---|---|---|
| Old SME (from 1 Apr 2023) | 86% | 10% (14.5% for R&D-intensive SMEs) |
| ERIS (from 1 Apr 2024) | 86% | 14.5% |
ERIS (from 1 April 2024) is only available to SMEs that are:
- Loss-making (before the additional deduction), and
- R&D-intensive (R&D expenditure must meet a 30% intensity threshold of total expenditure)
State aid / grants: If your company receives a notified State aid grant for a specific R&D project, it cannot also claim SME R&D relief for that project, though it may be able to claim RDEC instead.
First-time claimants may apply for Advance Assurance from HMRC before making a claim.
⚠️ Important: R&D tax relief under these schemes is only available to limited companies within the charge to UK corporation tax. Sole traders and partnerships cannot claim under these rules. If your business is not a company, you may wish to consult an accountant or HMRC directly about alternative options.
Citation sources
ce which has either a trade in goods or relevant activities in relation to electricity. The SME R&D tax relief scheme If a company is in receipt of a notified State aid for an R&D project it cannot also claim SME R&D relief for that project. This is to avoid the company receiving more State aid than is permitted under the State aid cumulation rules. A company that has received a grant or other form of support which is notified State aid for a project cannot subsequently repay this support in o
CTA09/Ss 1133 - 1136 The meaning of subcontracted activities is dealt with at CIRD84250. The subcontracted R&D must be directly undertaken on behalf of the company, meaning that the subcontractor must do the work itself, not further subcontract it to a third party, unless the parties are unconnected and the claim is made under the scheme. The subcontracted expenditure that is within this category of qualifying expenditure is different for the SME scheme and the RDEC. SME scheme For an SME co
As is mentioned at CIRD81100 one of the conditions for R&D tax reliefs being due is that there is qualifying expenditure. When the SME scheme CIRD90000 was first introduced the categories of qualifying expenditure were: Staffing costs CIRD83000 Consumable stores CIRD82450 Subcontracted R&D CIRD84200 For each category it is only expenditure incurred after the inception of the schemes that can qualify. Introduction of new category in FA02 - contributions to independent research With the intr
SME Relief was extended in relation to expenditure incurred on or after 1 August 2008. For the purposes of R&D relief a SME is a company which meets the normal conditions specified in the EU SME definition, except that it employs fewer than 500 persons and has an annual turnover not exceeding €100m, and/ or an annual balance sheet total not exceeding €86m. Companies satisfying this widened definition are entitled to R&D relief under the SME, rather than the large company, rules. (CIRD91900)
ble for the R&D for SME scheme. However you may be eligible for R&D Expenditure Credits (RDEC). More information is available on gov.uk/researchand development tax relief for large companies. If no continue to the next question. 6. Is the turnover of your company (or group) not more than €100m or the balance sheet less than €86m? If yes, turnover less than €100m or the balance sheet less than €86m please continue. If no then your company is ineligible for the R&D for SME scheme. However you may
Part 13 ... expenditure on research and development Chapter 9 Supplementary Staffing costs Staffing costs: attributable expenditure 1124 1 This section applies for the purposes of this Part to identify when staffing costs are attributable to relevant research and development. 2 The costs which are so attributable are those paid to, or in respect of, directors or employees who are directly and actively engaged in relevant research and development. 3 Subsection (4) applies if a director or employe
The Finance Act 2024 modified Chapter 2 of Part 13 of the Corporation Tax Act 2009 (CTA09) to make provision – known as enhanced R&D intensive support (ERIS) - for loss-making R&D-intensive SMEs with effect for accounting periods beginning on or after1 April 2024. The commencement date of 1 April 2024 was defined in Treasury regulations issued on 4 March 2024 (SI2024/286). Retrospective provision (enhanced support for R&D intensive SMEs), permitting SMEsto claim the higher tax credit rate of 14.
SME rates (accounting periods beginning before 1 April 2024): Expenditure incurred on or after Additional deduction Enhanced expenditure Payable tax credit 1 April 2000 50% 150% 16% 1 August 2008 75% 175% 14% 1 April 2011 100% 200% 12.5% 1 April 2012 125% 225% 11% 1 April 2014 125% 225% 14.5% 1 April 2015 130% 230% 14.5% 1 April 2023 86% 186% 10% (14.5% for R&D intensive SMEs – see CIRD123000) ERIS rates (accounting periods beginning on or after 1 April 2024 only): Expenditure incurred on or af
Part 13 ... expenditure on research and development Chapter 2 Relief for loss-making, R&D-intensive SMEs Reliefs Additional deduction in calculating profits of trade 1044 1 A company is entitled to corporation tax relief for an accounting period if it meets each of conditions A to F . 2 Condition A is that the company is a small or medium-sized enterprise in the period. 2A Condition B is that the company— a meets the R&D intensity condition in the period, or b obtained relief under this Chapter