R&D Tax Relief UK: A 2025 Guide for Small Businesses

Research and Development (R&D) tax relief remains one of the most powerful incentives for UK businesses investing in innovation. Designed to support small businesses and start-ups, this government-backed scheme can reduce your corporation tax bill or even result in a cash credit.

Yet many business owners are still unaware they qualify or unsure how to make a claim.

In this updated 2025 guide, AGILE Accountants explains how R&D tax relief works, what activities qualify, and how small limited companies can unlock significant financial benefits through a successful claim.

What Is R&D Tax Relief?

R&D tax relief is a government incentive that rewards companies developing or improving products, services, processes or technologies. If your company is working to overcome scientific or technological uncertainties, you could qualify.

Eligible businesses can either reduce their corporation tax bill or, if loss-making, receive a cash credit. In recent years, the UK government has adjusted the scheme to crack down on abuse while continuing to support genuine innovation.

R&D Tax Relief for Small Businesses in 2025

As of April 2024, the UK has merged the previous SME scheme and RDEC into a single, streamlined scheme. However, enhanced relief is still available for R&D-intensive small businesses.

To qualify as an R&D-intensive SME in 2025, your business must:

• Spend at least 30% of total expenditure on qualifying R&D activities
• Be a UK limited company subject to Corporation Tax

If eligible, you may benefit from:

• Up to 20% effective relief for loss-making businesses
• Enhanced support via HMRC’s new Advanced Notification Requirement

Important: You must now notify HMRC of your intent to claim R&D relief within 6 months of your financial year-end, unless you've made a claim in the last 3 years.

What Counts as R&D for Tax Relief Purposes?

Many business owners mistakenly assume R&D tax relief only applies to the tech or pharmaceutical sectors. In fact, qualifying projects span across construction, manufacturing, software, engineering, food and drink, and more.

Examples of Eligible R&D Activities:

• Designing and developing new products or prototypes
• Improving existing processes or services with technical advancements
• Developing software platforms or algorithms
• Experimenting with new materials or production techniques
• Solving technical challenges with no obvious solution

Common Non-Qualifying Activities:

• Market research and customer surveys
• Routine product updates with no innovation
• Cosmetic changes (e.g. design or branding only)
• Activities with no technical uncertainty

Key rule: The project must aim to advance knowledge in a field of science or technology and involve uncertainty that a competent professional could not easily solve.

What R&D Costs Can You Claim in 2025?

R&D tax relief only applies to specific categories of qualifying expenditure, such as:

1. Staff Costs – Salaries, NICs, pensions of employees involved in R&D
2. Software Costs – Relevant cloud computing and software licences
3. Consumables – Materials and utilities used in the R&D process
4. Subcontractors – A portion of payments to UK-based subcontractors
5. Prototype Costs – Costs of building and testing prototypes (excluding capital expenditure)

From April 2024, overseas subcontractor costs are largely excluded unless the work cannot be done in the UK due to legal, geographical, or environmental factors.

How to Claim R&D Tax Relief in the UK

Claiming R&D tax relief involves a detailed process, usually via your company’s Corporation Tax return (CT600). Here’s a simple breakdown:

1. Notify HMRC (if required)

New claimants or businesses not claiming within the past 3 years must submit an Advanced Notification Form within 6 months of the end of their accounting period.

2. Identify Qualifying Projects

Work with your accountant or R&D advisor to assess which projects meet HMRC’s criteria.

3. Prepare Technical Narrative and Cost Breakdown

You must provide a clear technical explanation of your R&D project and include a full breakdown of qualifying costs.

4. Submit via CT600

Include the R&D claim in your company’s Corporation Tax return and upload supporting documents.

5. HMRC Review and Payout

HMRC may ask questions or request further detail. If approved, you will receive either a tax reduction or cash credit, depending on your circumstances.

Benefits of Working with an R&D Tax Relief Specialist

Claiming R&D tax relief has become more complex following HMRC reforms, including greater scrutiny and compliance checks. Working with a specialist like AGILE Accountants ensures your claim is:

• Fully compliant with 2025 HMRC guidance
• Maximised by identifying all qualifying activities and costs
• Streamline to save you time and reduce risk

At AGILE Accountants, we support small UK limited companies across industries to submit robust, defensible claims that unlock valuable financial returns.

Common Myths About R&D Tax Relief

“Only high-tech companies qualify”

False. If you are solving technical problems in construction, manufacturing, food production, or any other sector, you may be eligible.

“The project must be successful”

This is wrong. Even failed or incomplete R&D projects can qualify – it is about the attempt, not the outcome.

“It is not worth the effort for small companies”

This is incorrect. Even small claims can provide vital cash flow, especially for start-ups or early-stage businesses.

“We will just do it ourselves”

DIY claims risk errors, missed opportunities and HMRC penalties if filed incorrectly.

Unlock R&D Tax Relief with AGILE Accountants

Based in Birmingham and supporting clients nationwide, AGILE Accountants specialise in helping owner-managed businesses and fast-growing start-ups unlock the value of R&D tax credits.

Whether you are making your first claim or looking to optimise existing submissions, we offer:

• Personalised advice
• Transparent fees
• Full compliance support
• Expert documentation preparation

Contact AGILE Accountants today to discover how much your business could save through R&D tax relief.