Research and Development (R&D) tax credits can make a real difference to a startup’s cash runway and product roadmap. Yet many founders either assume they are not doing “real R&D” or worry that HMRC’s stricter checks make it too risky to claim. This guide for tech startups is designed to cut through the jargon and give you a practical sense of what’s possible in 2025/26.
The timing matters. UK businesses spent £55.6 billion on R&D in 2024, up 4.5% on the previous year, with software development now the largest single category of spend (ONS, 2025). That underlines how central digital and tech businesses are to innovation in the UK.
Alongside that, Autumn Budget 2025 confirmed that annual public R&D investment is set to rise to £22.6 billion by 2029–30 and repeated the Treasury’s view that every £1 of public R&D spend delivers around £8 of wider economic benefit (HM Treasury, 2025).
If you are building software, platforms or digital products, there is a good chance some of your work qualifies. The rest of this guide for tech startups focuses on how the 2025/26 rules work, where the opportunities are, and how to avoid common mistakes.
How R&D tax credits work
From 1 April 2024, most companies fall under the merged R&D Expenditure Credit (RDEC-style) scheme. The old SME and large company schemes now only apply to earlier periods. The merged scheme offers:
- Expenditure credit: A taxable credit equal to 20% of qualifying R&D spend, which is then subject to corporation tax.
- Net benefit: For a company paying the main 25% Corporation Tax rate, that 20% credit typically works out at around 15% after tax – so a £100,000 qualifying spend might give you roughly £15,000 of net support.
Alongside the merged scheme, Enhanced R&D Intensive Support (ERIS) is available for loss-making, R&D-intensive SMEs. In simple terms, if you are an SME, loss-making and your qualifying R&D is at least 30% of total expenditure for the period, you may access a higher payable credit rate, potentially worth up to around 27% of qualifying spend. (HMRC, 2023).
A few headline points:
- Merged scheme coverage: Applies to accounting periods starting on or after 1 April 2024.
- ERIS focus: Designed for loss-making, highly R&D-intensive SMEs, often early-stage tech and life sciences companies.
- Overseas costs: Most overseas subcontractor and externally provided worker costs are restricted under the merged scheme, with some narrow exceptions, so placing work in the UK is now more important.
For a tech startup, the key is to understand which scheme you fall into, the likely benefit in cash terms, and how that fits into your cashflow and funding plan.
R&D eligibility: A practical guide for tech startups
The single biggest misunderstanding we see is that “R&D” has to be a lab coat exercise. In HMRC terms, you are looking for projects that:
- Aim to achieve an advance in science or technology.
- Face scientific or technological uncertainty that a competent professional could not easily resolve.
- Involve systematic, investigative or experimental work, not just routine development.
HMRC’s online tool is a useful starting point if you need to check whether a project qualifies. It walks you through the key tests and lets you print a summary for your records. Check if a project includes activities that qualify as R&D.
For a guide for tech startups, typical qualifying work might include:
- New platform architecture: Re-engineering your backend to handle scale, latency or security challenges beyond standard practice.
- Machine learning or AI features: Developing or training models where the outcome is uncertain, rather than simply plugging in an off-the-shelf API.
- Complex integrations: Building new, reliable ways of connecting multiple systems where existing methods are not sufficient.
- Core engine work in games or creative tools: For example, creating a new rendering engine or real-time collaboration framework.
On the other hand, the following often do not qualify on their own:
- Pure UI/UX redesigns: Cosmetic changes without underlying technical uncertainty.
- Routine refactoring: Tidying legacy code where the technical route is known.
- Standard implementations: Using common frameworks, libraries or SaaS tools without pushing them in a new way.
We help clients in the digital, media and tech space map their roadmap against HMRC’s definition, so that the guide for tech startups becomes a practical checklist rather than theory.
Building a robust first claim
Once you have identified likely qualifying projects, the next step is assembling a claim that can stand up to HMRC scrutiny and genuinely reflects the work you are doing.
Use this structure as a working guide for tech startups heading towards a first claim:
- Define projects: Group work into distinct R&D projects with clear aims, uncertainties and outcomes. Avoid treating the entire product as one project unless it really is.
- Link people to projects: Map each developer or technical team member to specific projects for specific periods. Timesheets are ideal, but realistic percentage estimates supported by evidence can work.
- Capture qualifying costs:
- Staff costs: Gross pay, employer NIC and pension contributions related to qualifying activity.
- Externally provided workers: Agency developers under your direction and control, subject to merged scheme rules.
- Consumables and cloud: Certain consumable items and a proportion of data and cloud computing costs.
- Document uncertainties: For each project, keep short notes on what was uncertain, what alternatives you tried and what ultimately worked or failed. Screenshots, architecture diagrams and tickets all help.
- Align with your accounts: Your R&D narrative should match your management accounts and product roadmap. If you talk about a major AI rebuild to HMRC, it should also be visible in your internal planning and board packs.
Done properly, this process supports the claim and improves internal reporting. For many founders, the outcome is more disciplined product planning as well as a stronger claim.
Common risk areas and HMRC’s current focus
HMRC has significantly increased its R&D compliance activity in recent years, partly due to concern about dubious claims and aggressive advisers. Independent reporting has highlighted a steep rise in the share of claims checked and a substantial increase in HMRC staff working on R&D compliance.
Based on current guidance and enquiry trends, we see a few recurring risk areas:
- Over-claiming routine development: Treating all feature work as R&D, with no clear explanation of the advance or uncertainty.
- Thin technical narratives: Submitting claims built around commercial benefits (“we increased revenue”) rather than technical challenges.
- Weak link to costs: Claiming large percentages of staff time without any supporting evidence in timesheets, project tools or documentation.
- Third-party “success-fee” claims: Allowing advisers to retrofit a story to your accounts after the year end, with little involvement from your internal technical leads.
For a guide for tech startups, the message is simple: keep your claims close to the way your product team actually works. Involve your CTO or lead engineer in shaping the projects and reviewing the narrative, and avoid anything that feels like it is stretching reality.
When specialist support adds value
Some teams are comfortable running R&D claims entirely in-house. Others prefer to work with an adviser who understands their tech stack and HMRC’s expectations. As a firm focused on digital, creative and media businesses, we have seen both approaches work – the key is to stay in control of your claim.
It often makes sense to get specialist help when:
- You are preparing your first claim: A one-off, hands-on guide for tech startups can set up your internal process properly from day one.
- You have multiple schemes in play: For example, a loss-making SME that may qualify for ERIS in some years and the merged scheme in others.
- You are scaling quickly: Rapid headcount growth, multiple products and overseas teams can all complicate the position.
- HMRC has opened a compliance check: At that point you need both technical and tax expertise to respond effectively.
You can read more about our technology-led accounting approach and how we work with digital and creative founders to integrate R&D claims into their wider finance set-up.
Bringing this guide for tech startups into your finance plan
Used well, R&D tax relief is not just a one-off refund. For many tech startups it becomes a predictable part of the funding mix, sitting alongside equity, grants and revenue. With government R&D investment rising and the merged scheme now bedded in, the direction of travel is clear: there is strong support for genuine innovation, but much less tolerance for weak claims. GOV.UK+1
As founders, that should shape how you plan: treat R&D relief as a long-term incentive that rewards disciplined product development, not a quick fix for short-term cashflow. Build record-keeping and technical documentation into your sprint cycle, and make sure your finance and engineering teams talk to each other when scoping new projects.
If you would like a clear guide for tech startups tailored to your product, we can help you:
- Identify which parts of your roadmap are likely to qualify.
- Model the potential benefit under the merged scheme or ERIS.
- Put simple, low-friction processes in place so future claims are easier and less disruptive.
To speak to our digital, creative and media specialists about R&D tax credits, get in touch and ask for our guide for tech startups on using R&D tax relief as part of your funding strategy.
