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1. What is the merged R&D scheme and how does it affect us as a UK company?

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Answer:
The merged scheme, introduced in April 2024, combines the former SME and RDEC schemes into a single unified scheme. For most businesses, it means a flat 20% tax credit on qualifying expenditure (as an above-the-line benefit), whether profitable or loss-making. It simplifies administration and eligibility but narrows claim boundaries.

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2. Are software development and technology R&D still eligible?

Answer:
Yes, if your work seeks to overcome scientific or technological uncertainty, such as building custom algorithms, developing scalable infrastructure, or enhancing system performance in novel ways.

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3. What qualifies as “technological uncertainty”?

Answer:
Uncertainty exists when a competent professional can't readily deduce a solution using standard practice. For example, developing a new integration framework for disparate systems under unique constraints.

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4. Can we claim for work on failed or incomplete projects?

Answer:
Yes. Unsuccessful projects or dead ends often involve significant R&D and may still qualify as long as there was genuine uncertainty and technical effort involved.

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5. How is the R&D tax credit calculated under the new scheme?

Answer:
Eligible costs × 20%. If your company is loss-making, it may be surrendered for a cash benefit, subject to a cap. For profitable firms, it reduces corporation tax or can create a repayable credit.

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6. What costs can we include in a claim?

Answer:
Key cost categories include:

• Staff salaries + NICs + pensions

• Subcontracted R&D

• EPWs (Externally Provided Workers)

• Software licences

• Cloud & data costs (post-2023)

• Consumables

• Clinical trial volunteers

• Some prototyping costs

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7. Can we claim for open-source contributions or devops work?

Answer:
Only if that work involves overcoming technical uncertainties directly tied to R&D goals. Routine maintenance or basic ops work is not claimable.

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8. How do we define the boundary between routine software work and R&D?

Answer:
Routine development uses established techniques. R&D involves resolving unknowns—e.g., scalability bottlenecks, architectural innovations, or novel integrations that require experimentation.

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9. How are subcontractors and overseas developers treated under the merged scheme?

Answer:
From April 2024, only UK-based subcontractor and EPW costs are eligible. Overseas costs are disallowed unless there’s a valid exception under transitional rules.

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10. What documentation do we need to support our claim?

Answer:
HMRC now requires a mandatory additional information form, outlining:

• Technical summaries of R&D projects

• Advance notification (if required)

• Cost breakdowns

• Narrative evidence of uncertainties and resolutions

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11. When do we need to notify HMRC of our R&D activities?

Answer:
If you're claiming for the first time (or haven’t claimed in the last 3 years), you must submit an Advance Notification Form within 6 months of the end of the accounting period you want to claim for.

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12. Can we include time spent by directors or senior engineers?

Answer:
Yes, as long as they’re directly involved in qualifying R&D. You must apportion their time realistically and document it properly.

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13. How does HMRC define a “competent professional”?

Answer:
Someone with the relevant technical expertise and experience to make informed judgments on technical uncertainties, e.g., a senior software engineer or system architect.

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14. Are security, AI, or blockchain projects eligible?

Answer:
They can be, if they involve technical challenges. For example, developing a novel blockchain consensus method or AI model training framework not available off-the-shelf.

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15. How does the PAYE/NIC cap work in the merged scheme?

Answer:
The claimable cash benefit for loss-making companies is capped at 300% of your total PAYE/NIC liabilities, with a £20,000 grace allowance. This prevents abuse via excessive subcontracting.

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16. How far back can we claim R&D tax credits?

Answer:
You can amend previous tax returns going back 2 years from the end of the accounting period. Claims outside this window are time-barred.

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17. Can we claim R&D tax credits alongside grants or Innovate UK funding?

Answer:
Yes, but funding may affect how your project is treated—e.g., grant-funded work may fall under the RDEC rules (still 20% now under the merged scheme), reducing the amount claimable.

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18. What are common reasons HMRC rejects or questions claims?
Answer:

• Vague definitions of R&D

• No technical uncertainty

• Poor documentation

• Inflated costs or duplicate staff hours

• Claiming for overseas work without exceptions

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19. Do we need to use an R&D tax consultancy, or can we claim directly?

Answer:
You can claim directly, but due to recent HMRC scrutiny and compliance activity, many CTOs choose to work with experienced consultancies to avoid errors, maximize claims, and handle technical narratives.

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20. How long does it take to process a claim?

Answer:
Typically 6–8 weeks, though HMRC processing times may vary depending on complexity or backlog. Claims under review may take longer if selected for enquiry.

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