Short answer
Four things have to be true. You are a company within the charge to UK corporation tax. You carry on a trade. You have spent money on a project that meets the tax definition of research and development. And that spending is deductible in working out the profits of the trade, or would be if you were already trading. Nothing about your size, your sector, your profitability or whether you own the resulting intellectual property is part of the test.
Applies to
- Schemes
- Merged scheme · ERIS · Legacy SME · Legacy RDEC
- Periods
- 1 April 2024 onwards
- Claimants
- All
Condition one: you are a company chargeable to corporation tax
R&D relief is a corporation tax relief. It exists only inside the corporation tax system, so only entities inside that system can claim it.
“Company” here means any body corporate or unincorporated association. That is wider than “limited company”: it takes in companies limited by guarantee, community interest companies, and companies incorporated overseas that have a UK permanent establishment within the charge to corporation tax. It excludes partnerships, limited liability partnerships, sole traders and local authorities, none of which can claim in their own right — although a company that is a member of a partnership is a separate question.
Being incorporated is not enough on its own. The relief attaches to profits charged to corporation tax, so if your activity sits outside that charge, the relief has nowhere to land.
Condition two: you carry on a trade
Under the merged R&D expenditure credit, you have to be carrying on a trade during the accounting period you are claiming for. A company that has been incorporated, has raised money and is spending on development but has not yet begun to trade does not meet this condition, and cannot claim the merged scheme credit at all.
There is one route around this, and it is narrow. A loss-making SME that meets the R&D intensity condition can elect to treat pre-trading R&D spending as a deemed trading loss under enhanced R&D intensive support, without carrying on a trade at the time. If you are pre-trading and you do not qualify for ERIS, there is no claim to make for that period — the expenditure is not lost, but it is relieved through the ordinary pre-trading expenses rules rather than through R&D relief.
This is the single most consequential eligibility point for early-stage companies, and it changed shape on 1 April 2024. Check it before you promise anyone a number.
Condition three: there is a qualifying R&D project
The project has to seek an advance in science or technology through the resolution of scientific or technological uncertainty that a competent professional working in the field could not readily resolve. That test is the same for every scheme and every company size, and it is where most enquiries are won or lost. It is not a test of novelty in your market, commercial risk, or how difficult the work felt.
The definition is set by the government’s guidelines on the meaning of R&D for tax purposes, not by the legislation, and applying it properly needs a separate treatment.
Condition four: the expenditure is deductible against the trade
The money has to be revenue expenditure that is allowable as a deduction in computing the profits of your trade — or, for a pre-trading ERIS claim, expenditure that would have been allowable had you been trading at the time.
Two consequences follow. Capital expenditure is outside R&D tax relief entirely, whatever it was spent on; there is a separate relief for capital spending on R&D. And expenditure that is disallowed for some other tax reason does not become allowable because it was spent on R&D.
What is not a condition
Several things that people assume matter do not:
- Size. For accounting periods beginning on or after 1 April 2024, a large company and a five-person company claim the same relief on the same terms. Size only decides whether you can also access ERIS.
- Profitability. Loss-making companies claim; so do profitable ones. The amount and the mechanics differ, not the entitlement.
- Owning the intellectual property. This has never been a condition of the relief. It has been in HMRC’s factsheets and in a great deal of adviser marketing, but it is not in the legislation.
- Success. A project that failed is still R&D. Failure is often the clearest evidence that there was a genuine uncertainty.
- Sector. There is no list of qualifying industries.
Two further conditions that bite at payment rather than entitlement
Going concern. To receive a payable amount you have to be a going concern on the test set out in the legislation, which looks at your latest published accounts and whether you are in administration or liquidation.
Not an ineligible company. Charities, universities and other higher education institutions, scientific research organisations and health service bodies are excluded from the relief by name, whatever else they satisfy.
Worked example
Illustrative. Two companies, both incorporated in 2023, both with a 31 March year end, both spending £300,000 on qualifying development in the year to 31 March 2026, both loss-making, both SMEs.
| Company A | Company B | |
|---|---|---|
| Trading in the period? | Yes — selling since 2024 | No — pre-revenue, still building |
| R&D as a share of total expenditure | 20% | 70% |
| Meets the ERIS intensity condition? | No | Yes |
| Claim available | Merged scheme credit | ERIS, by election, on pre-trading expenditure |
Company B, which looks the less commercially established of the two, has a claim. A third company in Company B’s position but with R&D at 20% of total spend has no claim for that period at all, because it fails the trade condition for the merged scheme and the intensity condition for ERIS. That company’s expenditure is carried into its first trading period under the ordinary pre-trading rules — worth knowing before it files.
See the rate and threshold timeline for what each of these is worth.
Where claims go wrong
- Claiming the merged scheme credit for a pre-trading period. The trade condition is explicit and there is no discretion in it. We see this most often where a company incorporated for a single development project claims for the two years before its first sale.
- Assuming an LLP can claim. It cannot. Where the R&D is done inside an LLP with corporate members, the analysis is about what those members can claim, and it is rarely as simple as the promoter suggests.
- Treating “we own the IP” as the eligibility test. It is not a condition, and building a claim narrative around it distracts from the conditions that are.
- Capitalising development costs and then claiming them as revenue. The accounting treatment does not settle the tax question, but if the expenditure is genuinely capital it is outside the relief. This needs to be resolved before the claim is prepared, not after HMRC asks.
- Testing eligibility once and never again. All four conditions are tested period by period. A company that qualified last year can fail this year on the trade condition, the intensity condition or ineligible-company status without anything visible changing.
John Mapother
Founder & Director
Last reviewed 30 August 2026