The scheme that changed in April 2024
For accounting periods starting on or after 1 April 2024, every UK company claims R&D relief through one merged scheme, so the old split between SME relief and RDEC is gone. The single scheme is still called RDEC and offers a 20 percent above-the-line credit to all eligible companies regardless of size. For most profitable SaaS businesses this is less generous than the old SME scheme, which at its peak gave a 130 percent enhanced deduction, but the saving is still meaningful.
On £200,000 of qualifying staff costs, a company paying Corporation Tax at 25 percent keeps roughly £30,000 more after tax than it would without the claim, and that number compounds as headcount grows. We handle these claims regularly as specialist tech startup accountants, and the detail that decides most claims is not the rate but what actually qualifies.
One route remains more generous for a specific group. Loss-making companies where at least 30 percent of their adjusted trading costs are qualifying R&D can access the Enhanced R&D Intensive Support scheme, known as ERIS, covered separately below because the mechanics genuinely differ.
The 20 percent RDEC credit is "above the line", meaning it appears as income in your accounts before tax rather than as a reduction in your tax bill. Even profitable companies can receive a cash credit for any excess over their Corporation Tax liability, subject to the PAYE cap described later.
What counts as R&D in a SaaS business?
Qualifying R&D means resolving a genuine technological uncertainty, not just building something difficult. HMRC follows the government's guidelines, which focus on whether the work seeks an advance in overall knowledge or capability in a field of science or technology, rather than an advance in your own understanding. Practically, your developers need to be tackling a problem a competent professional could not readily solve from existing knowledge.
Building a recommendation engine using a genuinely novel approach to sparse-matrix factorisation qualifies. Implementing a standard REST API or building a routine dashboard in React almost certainly does not. Novel algorithm development where the performance characteristics are uncertain at the outset, new data architectures for volumes or real-time patterns not previously achieved, custom compilers, new machine-learning approaches requiring scientific experimentation, and unresolved cryptographic challenges can all qualify. The test is always whether your lead engineer would say "we do not know if this is technically possible yet".
Routine development, however skilled, falls outside the definition: migrating a database, porting to a new operating system, adding features where the path is well understood, and business analysis all sit outside R&D. Cloud services used to run HR, CRM or project management cannot be included either.
HMRC has significantly increased R&D enquiries since 2022, particularly targeting software companies. Claims that describe routine development in inflated language, or include 100 percent of a developer's time with no documentation, are the most common triggers. Every qualifying project needs a brief technical narrative explaining the specific uncertainty and what experiments were run to resolve it.
How the 20% credit actually works
Because the credit is above the line, it is added to your income and then taxed, which is why 20 percent becomes roughly 15 percent net. Take a profitable SaaS company with £300,000 of qualifying expenditure: the 20 percent RDEC credit of £60,000 is added as income, Corporation Tax at 25 percent takes £15,000 of it, and the net benefit is £45,000. That is an effective 15 percent on the qualifying spend. For a company in the small profits rate at 19 percent, the same calculation produces around £48,600 net, roughly 16.2 percent.
ERIS: the better route for early-stage startups
If you are loss-making and R&D-intensive, ERIS pays more than standard RDEC. Many seed-stage and Series A SaaS companies spend a very high proportion of their costs on engineering, and if your qualifying R&D is 30 percent or more of your total adjusted trading costs while you are loss-making, you can claim through ERIS instead of the merged RDEC.
ERIS provides a 186 percent deduction (100 percent normal plus 86 percent additional), generating a larger surrenderable loss, and you then claim a payable credit of 14.5 percent of that loss. The cash return is not taxable income in the way the RDEC credit is, so it is meaningfully more generous. On £300,000 of qualifying expenditure in a fully loss-making ERIS-eligible company, the approximate cash return is around £80,520, compared with £60,000 under standard RDEC before the PAYE cap and Corporation Tax. That difference can fund two or three additional months of engineering capacity.
The 30 percent R&D intensity threshold is calculated on adjusted trading costs, not turnover. Staff, contractor fees, cloud spend and other operating costs all count in the denominator, so if your qualifying R&D is near the borderline, the composition of your cost base matters when structuring the claim.
The PAYE cap and the notification deadline
Two rules catch founders out more than any others: the PAYE cap and the notification deadline. Both the merged RDEC scheme and ERIS cap the cash credit at three times your total PAYE and National Insurance liability for the period, with a floor of £20,000. For most product-led SaaS companies with a payrolled engineering team this is not an issue. The complication arises when a large part of the R&D is done by overseas contractors or UK self-employed consultants whose fees are not PAYE-eligible, so they do not increase the cap. We see this in around a third of the tech startups we onboard. The cap does not reduce what you are entitled to, only what you can take as cash that period; excess credit carries forward.
The notification deadline is the one that loses claims entirely. Since August 2023, if your company is making its first ever claim, or has not claimed in the previous three accounting periods, you must notify HMRC within six months of the end of the accounting period you intend to claim for. Miss that window and you lose the right to claim for that period, with no appeal. For a 31 March 2026 year-end, the notification deadline is 30 September 2026, while the CT600 itself has two years, so 31 March 2028. The notification arrives first and catches founders who decide to claim retrospectively.
Advance Assurance: worth applying for?
For a first claim with any grey area, Advance Assurance buys certainty. HMRC offers this pre-claim scheme for companies making their first R&D claim with turnover under £2 million and fewer than 50 employees. If granted, it means HMRC will not enquire into your first three years of claims based on the activities described. Applications take around four to six weeks. They are particularly useful where R&D sits in a contested area, such as AI work where the line between genuine research and routine model fine-tuning is blurred. For clear-cut qualifying activity with a well-prepared narrative, the time cost may not be worth it; for any doubt, the certainty is valuable.
What this means for your SaaS business right now
Three practical steps make the difference between a solid claim and an enquiry.
- Start your project log now. HMRC expects a technical narrative per qualifying project describing the uncertainty, the experiments you ran, and the outcome. Reconstructing this from memory a year later produces thin documentation that does not survive scrutiny. A short Notion page per project, updated monthly, is enough.
- Review your staffing structure before you claim. If a substantial part of your engineering sits with overseas contractors or UK freelancers outside PAYE, understand the PAYE cap implications first. Sometimes bringing a contractor onto payroll part-time changes the cap materially.
- Check whether you need to notify HMRC now. If this is your first claim or you have not claimed in the last three periods, the six-month window is already running from the end of your current period. Missing it costs the entire year's claim.
For the tech startups we work with across London, the average first-year claim is £40,000 to £120,000 in net benefit, depending on headcount and qualifying project scope. The only way to know your number is to map your actual cost base against the HMRC guidelines, which is where specialist tax planning advice pays for itself. You can get your claim sized in a free call with LOYALS.
Here is how the three common ways to make an R&D claim actually compare:
| What you need | DIY / claim mill | Generic accountant | LOYALS tech specialist |
|---|---|---|---|
| Writes a defensible technical narrative | ✗ Templated | ● Light | ✓ Per project |
| Separates qualifying from routine work | ✗ Over-claims | ● | ✓ Line by line |
| Checks the PAYE cap and ERIS eligibility | ● | ✗ | ✓ Both modelled |
| Files the notification in time | ✗ | ● If reminded | ✓ Diarised |
| Defends the claim if HMRC enquires | ✗ Often vanishes | ● | ✓ We handle it |
With HMRC enquiries rising, a defensible claim from a specialist is worth far more than a bigger number from a claim mill.