UK R&D Tax Relief for Software Development: 2026 Rules

The short answer

Software development can qualify for UK R&D tax relief, but only the part of the work that seeks an advance in computer science or information technology by resolving genuine technical uncertainty — not the whole build. For accounting periods beginning on or after 1 April 2024, most companies claim under the merged R&D Expenditure Credit scheme at a headline 20% of qualifying costs, which is itself taxable and therefore worth roughly 15p to 16.2p in the pound after tax. Loss-making SMEs that spend at least 30% of total expenditure on R&D can instead claim Enhanced R&D Intensive Support, worth up to about 27p in the pound.

The difficulty in 2026 is not the rate. It is that HMRC requires two separate filings before a claim is considered at all, and that the bar for a software advance is drawn far more tightly than most development teams assume.

Which scheme applies to you in 2026

The old split between the SME scheme and RDEC has gone for most companies. For accounting periods beginning on or after 1 April 2024 there are two routes: the merged R&D Expenditure Credit scheme, open to any size of company, and Enhanced R&D Intensive Support (ERIS) for loss-making SMEs that pass an intensity test.

The intensity condition is that qualifying R&D expenditure is at least 30% of total expenditure. A one-year grace provision applies: a company that met the condition in its previous 12-month accounting period, and made a valid claim to SME relief or ERIS in that period on expenditure incurred on or after 1 April 2023, may still claim.

Both routes are limited by a PAYE cap, which HMRC states as £20,000 plus 300% of the company's relevant PAYE and National Insurance contributions liabilities, unless exempt. Where engineering is delivered largely through contractors rather than payrolled staff, that cap can bite well before the rate does, making the delivery model a tax decision as much as an operational one.

Stratgik is a technology firm, not a law firm or tax adviser. What follows describes published HMRC rules so technology leaders can budget and document sensibly; the claim itself should be prepared with your accountant or a specialist adviser.

What HMRC actually treats as software R&D

This is where most software claims fail. HMRC's internal manual at CIRD81960 recognises two qualifying patterns: software built or adapted purely as a tool for a larger R&D project, which then forms part of that project; and software where the advance sought is itself in computing.

The advance must add to the knowledge available in the field, not merely to what your team happened to know. HMRC's examples include new or improved data architectures that cannot be achieved with readily deducible solutions, extending software development kits or libraries beyond their original design parameters where the knowledge was not previously available, a novel algorithm representing a significant increase in overall capability, and system integration problems where routine or established assembly methods would not resolve the technical uncertainty.

The exclusions are just as explicit. HMRC says it is unlikely that customisation such as configuring existing software to a company's own requirements would qualify. Also outside scope: combining established platforms without a novel approach, deployment and release activity after the uncertainty is resolved, business requirement gathering by the business's own subject matter experts, and confirmatory testing that does not feed back into design or development.

Read plainly, that removes a large share of a typical commercial build. Wiring a payment provider into a checkout, standing up a CRM integration, rebuilding a front end in a newer framework or configuring an off-the-shelf platform are all ordinary competent engineering — expensive and valuable without being R&D. If your custom software programme is mostly integration and configuration, expect the qualifying slice to be a minority of the budget.

Which costs can go into a claim

HMRC is clear that the list of qualifying categories is closed: you can only claim the costs it lists, and nothing else.

Notable exclusions include capital expenditure, land, patents and trademarks, rent, rates and leasing costs, redundancy payments, and the production and distribution of goods and services. The inclusion of cloud and data costs since April 2023 matters for machine learning work: training compute and data licences are now claimable where they sit inside a qualifying project.

The two deadlines that invalidate claims outright

These are procedural, unforgiving, and the most common reason a genuinely qualifying project yields nothing.

Claim notification. For accounting periods beginning on or after 1 April 2023, a company must submit a claim notification form if it is claiming for the first time, or if its last claim was made more than three years before the end of the claim notification period. That period runs from the first day of the period of account and ends six months after the end of the period of account. HMRC is blunt: miss it and the claim is invalid. Re-notification is also required where HMRC rejected a previous claim, or a prior claim was amended on or after 1 April 2023.

Additional information form. This must be submitted before the Company Tax Return claim. It requires the named senior internal contact responsible for the claim, details of every agent involved, the company's UTR, PAYE reference, VAT number and SIC code, accounting period dates matching the return, a breakdown of qualifying expenditure, and project narratives. Without it, HMRC states any R&D or expenditure credit claim will not be accepted.

How many projects you must describe depends on how many you have:

Each narrative must state the main field of science or technology, the baseline level of knowledge at the start, the advance the company aimed to achieve, the uncertainties it faced, and how those were overcome. Written eighteen months later from commit messages, these are usually thin. Written as the work happens, they are simply engineering notes — which makes this a delivery-process decision, not a year-end one.

Contracted-out work and overseas restrictions

Two changes from April 2024 reshaped how UK companies should structure outsourced development. First, for contracted-out R&D the company that decided to do the R&D and planned the work is the one entitled to claim — so a client handing a supplier a solved specification and a fixed price may find neither party well placed to claim.

Second, payments for overseas R&D activity and overseas externally provided workers are restricted, with limited exceptions; HMRC notes that loss-making SMEs based in Northern Ireland claiming ERIS are not subject to those restrictions. For a UK company running an offshore or nearshore team, this changes the after-tax comparison against a UK-based team and is worth modelling before signing a multi-year contract. Our app cost estimator gives the gross build figure; the relief position then adjusts it.

What the enforcement data says

HMRC's September 2025 statistics put the provisional number of claims for the 2023 to 2024 tax year at 46,950, a fall of 26% on the previous year, with £7.6 billion of support claimed against £46.1 billion of qualifying expenditure. SME claims fell 31%, RDEC claims 5%, and average claim value rose by around a third. Information and communication was the largest sector by volume, at 26% of claims and 21% of the amount claimed.

The fall is not a fall in British software engineering. It reflects the notification and information requirements introduced in 2023, tighter scrutiny, and the exit of a tier of volume claim agents. HMRC's own error and fraud estimate for R&D reliefs has come down accordingly, reported at 5.3% in its 2025 to 2026 annual report, from 6.4% in 2023 to 2024.

Separately, HMRC launched a targeted advance assurance pilot in May 2026, expected to run to May 2027. It is voluntary, limited to SMEs that have not yet claimed for the period, and covers up to two specific areas rather than a whole claim — the definition of R&D, overseas expenditure, entitlement on contracted-out R&D, and the PAYE cap exemption. Indicative turnaround is around 40 days for complete applications; the broader mandatory clearance model floated at consultation was not adopted. Because it is a pilot, its capacity is not yet established and it should not be assumed available for any particular claim.

How this changes a UK software budget

Take a UK company spending £800,000 a year on engineering. Suppose £200,000 is genuinely uncertain technical work — a novel matching algorithm, a data architecture with no readily deducible design — and the other £600,000 is integration, configuration, UI and delivery. Under the merged scheme at the 25% main rate, the qualifying £200,000 yields around £30,000 net: useful, roughly a senior engineer-month a quarter, but not a funding strategy.

That is the right framing for any UK technology budget: relief is a genuine but second-order reduction in the cost of work you had independent reasons to do. Where it legitimately shifts a decision is at the margin between buying a configurable platform and building something for which no adequate product exists. A structured technology decision sprint is a cheaper way to settle that than discovering it in year two.

Practical checklist

• Confirm which accounting period you are in and therefore whether the merged scheme or the pre-April 2024 rules apply.
• Test the ERIS 30% intensity condition if you are a loss-making SME, and check whether the one-year grace provision helps.
• Diarise the claim notification deadline: six months after the end of the period of account, if you are a first-time or lapsed claimant.
• Separate projects into ones with a stated technological advance and uncertainty, and ones that are competent delivery. Do not blend them.
• Record the advance sought, the baseline knowledge, the uncertainties and how they were resolved while the work is happening, in the format the additional information form requires.
• Tag time and cloud spend to qualifying projects in your existing tooling rather than reconstructing it later.
• Check the PAYE cap headroom before committing to a contractor-heavy delivery model.
• Review who made and planned the R&D decision in any contracted-out arrangement, and confirm your position on overseas activity.
• Have the claim prepared or reviewed by a qualified adviser, and keep the technical evidence in a form an HMRC enquiry could read.

Frequently asked questions

Does building a mobile app or a SaaS product qualify for R&D tax relief in the UK?

Not by virtue of being an app or a SaaS product. What matters is whether specific work within the build sought an advance in computer science or information technology and faced technological uncertainty a competent professional could not readily resolve. Most commercial builds contain some qualifying work and a great deal that does not.

Can we claim for AWS, Azure or GPU costs used to train a model?

Cloud computing and data licence costs have been claimable since April 2023 where incurred on a qualifying project, covering storage, hardware, operating systems and platforms. They cannot be claimed for qualifying indirect activities, and spend must be apportioned rather than claimed wholesale.

What happens if we miss the claim notification deadline?

HMRC's position is that the claim is invalid. The published guidance contains no discretionary extension, so a first-time claimant that does not notify within six months of the end of the period of account loses the relief for that period however strong the project was.

Can we claim if an offshore development partner did the work?

Payments for overseas R&D activity and overseas externally provided workers are restricted from April 2024, with limited exceptions. On top of that, for contracted-out R&D the entitled claimant is the party that decided to undertake the R&D and planned it. Both points need checking against your actual contracts before assuming a claim is available.

Is the 20% headline rate what we actually receive?

No. The merged scheme credit is taxable, so the net benefit is lower — commonly cited as around 15p per pound of qualifying spend for a company paying the 25% main rate, and around 16.2p for loss makers, where a 19% notional tax rate applies. Loss-making R&D intensive SMEs claiming ERIS can reach roughly 27p per pound.

Should we use the new advance assurance pilot?

Possibly, if you are an SME with a specific contested question — the definition of R&D, overseas expenditure, contracted-out entitlement or the PAYE cap exemption — and have not yet claimed for the period. It is voluntary, narrow and still a pilot running to May 2027, so it is no substitute for well-documented claims.

Where to take this next

The highest-return change most UK technology teams can make is to write down the advance and the uncertainty at the point the work starts, not at the year end. It costs almost nothing, it improves engineering decisions on its own merits, and it is the difference between a defensible claim and an abandoned one. If you are weighing how much of a programme should be built at all, our UK practice and technology strategy work start there rather than from the relief. For the claim itself, speak to a qualified accountant or R&D tax specialist — Stratgik is a technology firm, not a tax or legal adviser.

Sources: HMRC guidance on the merged scheme and Enhanced R&D Intensive Support, which R&D costs you can claim, claim notification, the additional information form, HMRC's internal manual at CIRD81960 on software, and R&D Tax Credits Statistics: September 2025. Written by the Stratgik team.