R&D tax relief
The April 2023 R&D rate cut, and what it did to tech startups
On 1 April 2023 the SME payable credit went from 14.5% to 10% and the extra deduction from 130% to 86%. For a loss-making startup that's the difference between £33,350 and £18,600 back on every £100,000 of R&D. This page works through the arithmetic under each regime since, and puts it next to what HMRC's own statistics show happened to tech company claims, with the caveats those figures need.
What changed
Four rates moved, on one date, by expenditure
Section 4 of the Finance Act 2023 rewrote four numbers in the Corporation Tax Act 2009, and every change applies to "expenditure incurred on or after 1 April 2023" (Finance Act 2023, s.4, as enacted). It's the date the money was spent that counts, not the date the accounting period started, so a company with a 31 December 2023 year end claims at the old rates on January to March spend and the new ones on the rest.
| Rate | Before 1 April 2023 | From 1 April 2023 | Where it's set |
|---|---|---|---|
| SME additional deduction | 130% | 86% | CTA 2009 s.1044 |
| SME enhanced expenditure (100% plus the additional deduction) | 230% | 186% | CTA 2009 s.1045 and s.1055 |
| SME payable tax credit, on the surrenderable loss | 14.5% | 10% | CTA 2009 s.1058 |
| R&D expenditure credit (RDEC) | 13% | 20% | CTA 2009 s.104M |
From Finance Act 2023, s.4. HMRC's rate history (CIRD127000) shows the 130%, 230% and 14.5% SME rates had applied to expenditure since 1 April 2015.
The stated aim, in the government's impact note, was to bring "the generosity of the two schemes closer" as a step towards a single RDEC-like scheme (Tax information and impact note, 21 November 2022). The RDEC side of that was mostly a large company story. The SME side hit loss-makers hardest: they take the relief as cash, so they lost both the bigger deduction and the higher credit rate, where a profitable company only lost the first.
Then came a partial reversal. At Spring Budget 2023 the government said it "acknowledges that the reform to the rates has created challenges for some R&D intensive SMEs" (HMRC technical note, 15 March 2023). The Finance Act 2024, which received Royal Assent on 22 February 2024 (legislation.gov.uk), restored the 14.5% credit for SMEs whose relevant R&D spend is at least 40% of total expenditure, connected companies included, for accounting periods ending on or after 1 April 2023 and beginning before 1 April 2024. HMRC is explicit that claims relying on it before Royal Assent aren't valid (CIRD123000). From periods beginning on or after 1 April 2024 the merged scheme and ERIS replaced both schemes, with the intensity threshold down to 30% (Finance Act 2024, s.2).
The arithmetic
What £100,000 of qualifying R&D returns to a loss-making startup
The typical early-stage tech company has no profit to shelter, so it surrenders the loss for a payable credit. Each row below is the same £100,000 of qualifying spend run through the rules in force at the time.
| Regime | How it's worked | Cash per £100,000 | Against the pre-April 2023 SME rate |
|---|---|---|---|
| SME scheme, expenditure before 1 April 2023 Accounting periods ending up to 31 March 2023 wholly; the pre-April part of a straddling period | 130% extra deduction (230% in total), 14.5% credit | £33,350 | Baseline |
| SME scheme, expenditure from 1 April 2023 Periods beginning before 1 April 2024 | 86% extra deduction (186% in total), 10% credit | £18,600 | -44.2% |
| SME scheme, R&D intensive (40% or more), from 1 April 2023 Periods ending on or after 1 April 2023 and beginning before 1 April 2024 | 186% in total, 14.5% credit, restored by Finance Act 2024 | £26,970 | -19.1% |
| Merged scheme Periods beginning on or after 1 April 2024 | 20% taxable credit, 19% notional tax held back | £16,200 plus £3,800 held back against future tax | -51.4% |
| ERIS, R&D intensive (30% or more) Periods beginning on or after 1 April 2024 | 186% in total, 14.5% credit | £26,970 | -19.1% |
Our arithmetic. SME rows: enhanced expenditure times the credit rate, which is what the credit comes to when the loss before the claim is at least as big as the qualifying spend, so the whole enhanced amount is surrenderable (GOV.UK: work out your R&D tax relief). Merged scheme: the 20% credit is taxable, and for a loss-maker HMRC's step 2 holds back a notional deduction at the 19% small profits rate, which is set against Corporation Tax later rather than lost (CIRD112100). Every row assumes a standalone company, a 12-month period and a credit inside the PAYE cap of £20,000 plus 300% of PAYE and NIC (GOV.UK SME guidance).
Three things come out of that table. A non-intensive loss-maker's cash return fell by 44.2% overnight, from £33,350 to £18,600. The intensive rate softened it to 19.1%, but only for companies over the 40% line, and only after legislation that arrived nearly eleven months after the cut took effect. And the merged scheme that followed pays a non-intensive loss-maker less in cash than either, £16,200, with the other £3,800 arriving only once the company pays Corporation Tax.
Your own spend
Run it on your qualifying spend
Same assumptions as the table: a loss-making SME whose loss is at least as big as its qualifying spend, inside the PAYE cap. Runs in your browser; nothing is sent anywhere. For a claim you're preparing now, use the claim value estimator, which applies the loss, cap and intensity rules properly.
| Regime | Cash | Difference from pre-April 2023 |
|---|---|---|
| SME scheme, expenditure before 1 April 2023 | £33,350 | £0 |
| SME scheme, expenditure from 1 April 2023 | £18,600 | -£14,750 |
| SME scheme, R&D intensive (40% or more), from 1 April 2023 | £26,970 | -£6,380 |
| Merged scheme | £16,200 | -£17,150 |
| ERIS, R&D intensive (30% or more) | £26,970 | -£6,380 |
If the company is profitable
A smaller cut, and a Corporation Tax rise on the same day
A profitable company takes the relief as tax saved. Its fall was smaller, partly because the main rate of Corporation Tax went from 19% to 25% on 1 April 2023, which makes each pound of deduction worth more (GOV.UK: Corporation Tax rates and allowances).
| Company and regime | Corporation Tax saved per £100,000 |
|---|---|
| SME scheme, expenditure before 1 April 2023, 19% (FY2022 rate for all profits) | £24,700 |
| SME scheme, expenditure from 1 April 2023, small profits rate 19% | £16,340 |
| SME scheme, expenditure from 1 April 2023, main rate 25% | £21,500 |
| Merged scheme, small profits rate 19% | £16,200 |
| Merged scheme, main rate 25% | £15,000 |
Our arithmetic: the additional deduction times the Corporation Tax rate for the SME rows; for the merged scheme, the 20% credit less tax on it at the company's rate. Companies in the Marginal Relief band between £50,000 and £250,000 fall between the two rates and aren't shown.
What HMRC's figures show
Tech company claims, 2020-21 to 2023-24
HMRC doesn't publish a "tech startup" category. The closest it gets is SIC 2007 Section J, Information & Communication, which takes in software and computer programming companies alongside publishing, broadcasting and telecoms. HMRC assigns it from the registered company's main SIC code, not from the R&D itself. Section J has been the largest single sector for SME scheme claims in every year since 2021-22; in 2020-21 manufacturing was slightly ahead.
| Year (periods ending in) | 2020-21 | 2021-22 | 2022-23 | 2023-24 |
|---|---|---|---|---|
| Section J: SME scheme claims | 16,175 | 15,725 | 13,145 | 10,245 |
| Section J: SME scheme cost (£m) | 1,085 | 1,250 | 1,290 | 910 |
| Section J: average SME claim (£k, our arithmetic) | 67.1 | 79.5 | 98.1 | 88.8 |
| Section J: RDEC claims by SMEs | 1,780 | 1,885 | 1,740 | 1,610 |
| Section J: RDEC by SMEs cost (£m) | 105 | 120 | 150 | 220 |
| Section J share of all SME scheme claims (our arithmetic) | 21.2% | 21.9% | 24.7% | 27.8% |
| Section M (professional, scientific and technical): SME scheme claims | 11,095 | 10,685 | 8,515 | 6,435 |
| All sectors: SME scheme claims | 76,135 | 71,805 | 53,150 | 36,885 |
| All sectors: SME scheme cost (£m) | 4,200 | 4,620 | 4,440 | 3,145 |
| All sectors: first-time SME claimants | 16,120 | 13,155 | 7,230 | 2,565 |
HMRC, R&D Tax Credits Statistics: September 2025, main tables RD1, RD2, RD6 and RD8, based on returns received by 31 May 2025. HMRC rounds every figure to the nearest 5 or £5 million. 2021-22 onwards is provisional; 2023-24 is uplifted for claims not yet received, and HMRC expects the first-time claimant count for it to rise. Averages and shares are ours, worked on the rounded figures.
Read plainly: Section J SME scheme claims fell 22.1% between 2022-23 and 2023-24, and 34.8% from 2021-22. The cost of those claims fell 29.5% in the latest year, having risen slightly the year before. Across all sectors SME scheme claims fell 30.6%. Section J RDEC claims by SMEs, the route that got the higher 20% rate, rose in cost from £150m to £220m on slightly fewer claims. In 2023-24, the first year the intensive rate existed, HMRC counts 3,990 SME intensive claims across all sectors, costing £830m on £3,180m of expenditure; it doesn't break those down by sector.
Why these figures can't be read as "the rate cut did this". Three things sit on top of each other. First, HMRC's years count accounting periods that end in the year, so most of 2023-24 is periods that began before 1 April 2023 and straddle the change (only a period running from 1 April 2023 to 31 March 2024 sits wholly after it); HMRC's own commentary says that "where the accounting period straddles the implementation date of 1 April 2023, these impacts are partial" (HMRC). Second, the Additional Information Form became mandatory for every claim submitted from 8 August 2023, and for periods beginning on or after 1 April 2023 a first-time claimant, or one that hadn't claimed in the previous three years, has to notify HMRC in advance or the claim is invalid (GOV.UK), both of which weigh hardest on new, small claimants. Third, claim numbers were already falling in 2022-23, before any rate change applied, when HMRC says about half of that year's claimants already had to file the new form. HMRC plans its next release for autumn 2026; its 2024-25 figures will be the first year made up almost entirely of periods that began after the cut.
What the government expected
A saving to the Exchequer, and no change in R&D
The impact note published with the change forecast it would raise money from 2023-24 onwards, and that the Office for Budget Responsibility had certified it as having "a net neutral impact on R&D expenditure" (TIIN, 21 November 2022). That forecast covers the whole rate package, the RDEC increase included, not SMEs alone.
| Financial year | 2022-23 | 2023-24 | 2024-25 | 2025-26 | 2026-27 | 2027-28 |
|---|---|---|---|---|---|---|
| Exchequer impact (£m) | 0 | +215 | +620 | +1,070 | +1,250 | +1,340 |
As published in the TIIN, from table 5.1 of Autumn Statement 2022. These are forecasts made in November 2022, not outturn, and predate the intensive rate that gave some of the saving back.
Where it leaves a startup now
The 2023 rates only matter for claims still open
For any accounting period beginning on or after 1 April 2024 the choice is between the merged scheme and ERIS, and the scheme checker and claim value estimator work those through with your own figures. The rates on this page still decide the money on an amended claim for a straddling period, or on a period that began between April 2023 and March 2024 where a company close to the 40% line needs to check whether it qualified for 14.5% or 10%. Time limits and notification windows for those are on the claim deadlines calendar.
The cut also changed the funding sum. A lender advancing against an R&D claim is advancing against the credit HMRC is expected to pay, so a claim worth £18,600 per £100,000 instead of £33,350 supports less borrowing on the same spend. How those advances are structured, and what a lender checks first, is on R&D advance funding. The full sequence of rule changes since 2023 is on the R&D rule timeline.
Sources
Rates: Finance Act 2023, s.4; Finance Act 2024, s.2; HMRC manual CIRD127000, CIRD123000 and CIRD112100; GOV.UK work out your R&D tax relief, SME R&D relief and Corporation Tax rates. Policy: TIIN, reforms to R&D tax reliefs and technical note on R&D intensive SMEs. Claim figures: HMRC R&D Tax Credits Statistics, September 2025 and its main tables. All read on 24 September 2026. The per-£100,000 values, averages, shares and percentage changes are our own arithmetic.
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Adam Parker
Founder of Muswell Rose Consulting Ltd, which trades as Established Finance · former Managing Director of Penny, an invoice finance business, working in mortgages, commercial finance and fintech lending since 2010 (career history).
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Practical questions
Before you get in touch
What changed in the R&D tax rates on 1 April 2023?
For expenditure incurred on or after 1 April 2023, Finance Act 2023 cut the SME scheme's additional deduction from 130% to 86% (so 186% in total instead of 230%) and the payable tax credit for loss-makers from 14.5% to 10% of the surrenderable loss. The R&D expenditure credit (RDEC), used mainly by large companies, went up from 13% to 20%.
How much less did a loss-making startup get per £100,000 of R&D spend?
Under the SME scheme, £33,350 in cash for spend before 1 April 2023 and £18,600 for spend after it, a fall of 44.2%. That assumes the loss is big enough to surrender in full and the PAYE cap doesn't bite. An R&D intensive company (40% or more of its spend on qualifying R&D) could claim £26,970 once Finance Act 2024 restored the 14.5% rate for it.
Did the number of tech company R&D claims fall after the rate cut?
HMRC's September 2025 statistics show SME scheme claims from Information & Communication companies falling from 13,145 in 2022-23 to 10,245 in 2023-24 (provisional and uplifted), 22.1% down. HMRC's years count accounting periods ending in that year, so 2023-24 mostly holds periods that straddle 1 April 2023, and the Additional Information Form and claim notification rules came in over the same months. The fall can't be put down to the rate cut alone.
Which rules apply to a startup claiming now?
For an accounting period beginning on or after 1 April 2024, the merged scheme (a 20% taxable credit) or, for a loss-making SME spending at least 30% of its total expenditure on qualifying R&D, enhanced R&D intensive support (ERIS) at 14.5% of a surrenderable loss of up to 186% of qualifying spend. The 2023 cut only matters now for a claim or amendment still open for an earlier period.
What information do I need?
To start, just a description of what’s actually happening in the business. If it progresses, the provider will ask for the usual things: recent accounts, a sense of turnover and trading history, and details of the specific need.