R&D Tax Relief in 2025: What Every SME Director Needs to Know

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Research and Development (R&D) tax relief is still one of the most valuable incentives available to UK companies, but many small and medium-sized business owners wrongly assume they won’t qualify.

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In 2025, even after recent government reforms, thousands of SMEs across sectors like manufacturing, software, engineering, construction, and food production remain eligible to claim. If your company has developed a new product, improved a process, built custom software, or tackled a technical challenge, you could be entitled to a Corporation Tax reduction or cash credit worth thousands.

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What’s Changed in 2025?

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From April 2024, the SME and RDEC schemes were merged into a single, streamlined regime.

Here’s what’s new:

- Most companies can claim a 20% taxable credit, which typically results in a 15% net benefit after Corporation Tax.

- Loss-making, R&D-intensive SMEs (spending at least 40% of total costs on R&D) may still claim up to 27% as a cash credit.

- All claims must be submitted digitally through HMRC-compatible software.

- A new Additional Information Form (AIF) must be included, providing details of the project and qualifying costs.

If this is your first R&D claim or your first in more than three years you now need to notify HMRC within six months of your accounting period end.

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Who Can Still Claim?

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Qualifying R&D activity typically involves resolving scientific or technical uncertainty—something that couldn’t easily be solved by a competent professional in your field.

This could include:

- Designing or building bespoke software platforms.

- Improving manufacturing processes or materials.

- Developing eco-friendly packaging or sustainable products.

- Engineering new prototypes or production techniques.

You don’t need to be a tech company or own a patent. If you’ve worked to solve technical problems, you may be eligible.

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What Costs Can You Claim?

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The following costs may be included in your R&D tax relief claim:

- Staff salaries, National Insurance and pension contributions for those involved in R&D.

- Subcontractor and freelancer costs (some restrictions apply).

- Materials and components used during development or testing.

- Software licenses and cloud computing services used directly in the R&D.

- Utilities such as heat, light, and water used in qualifying activities.

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Common Pitfalls to Avoid

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While the scheme remains generous, HMRC has significantly tightened compliance.

Here are a few issues that can lead to rejections or penalties:

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- Claiming for routine work or general product development.

- Missing the 6-month advance notification deadline.

- Failing to submit the Additional Information Form (AIF).

- Overestimating costs or providing vague technical justifications.

- Relying on templated or non-specialist submissions.

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How We Can Help

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At Mitchell Associates, we work with innovative SMEs across the UK to:

- Identify eligible projects and qualifying costs.

- Prepare strong, compliant technical reports.

- Submit claims using HMRC-approved software.

- Advise on documentation and audit readiness.

- Represent you in the event of HMRC enquiries or follow-up.

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Whether you’ve claimed before or this is your first time, we simplify the process and ensure your claim is maximised and protected.

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Ready to Review Your Eligibility?
If your business has undertaken development or technical problem-solving in the past two years, now is the time to check your eligibility under the new rules.