The merged R&D tax relief scheme went live on 1 April 2024. Two years in, the compliance burden is showing up in your workflow.
Here's what changed, and where claims are getting stuck.
Who gets to claim subcontracted R&D
Only the company that initiated the R&D can claim. That means you need contracts showing intent at the point of agreement, technical direction logs, and clear evidence your client bore the risk.
Under the old SME scheme (pre-April 2024), unconnected subcontractors qualified at 65% of costs. That's gone. Now you need to prove decision-maker status or the claim fails.
Large firms (over 500 employees or £86m turnover/balance sheet) can now claim more easily under the merged scheme. Smaller firms can access ERIS if they hit 30% R&D spend on total outgoings (down from 40%).
Overseas costs are mostly out
Third-party, subcontractor, and EPW spend done overseas is ineligible unless you can justify UK unavailability in writing. No exceptions, no pro-rating across old and new scheme periods.
This hits firms with global supply chains hardest. Aerospace, defence, and engineering sectors are rewriting contracts to keep costs onshore or face losing relief.
EPWs now need UK PAYE
Externally provided workers only qualify if payments run through UK PAYE. You'll need PAYE references, location evidence, and clear justification for any overseas activity.
The Additional Information Form (AIF) now requires subcontractor company details, locations, PAYE refs, and overseas exemption reasoning. Document everything before you start the claim, not after.
What's tripping firms up
Most rejections trace back to poor evidence trails. HMRC wants signed contracts showing R&D intent, technical direction records, and proof of UK performance.
If your client uses complex supply chains or offshore contractors, start gathering documentation now. The "intended R&D" test is getting stricter, and retrospective justifications don't hold.
One bright spot
ERIS offers cash credits for loss-making SMEs, but you're capped at €300k de minimis relief over three years. You can opt out for full merged scheme relief, but overseas restrictions still apply.
The rules are clearer. The compliance burden is higher. Budget accordingly.