R&D tax credits are worth up to 27% of qualifying expenditure for SMEs under the merged scheme introduced in April 2024. For a company spending £500,000 per year on qualifying R&D, that is a potential credit of £135,000. either as a reduction in corporation tax or, for loss-making companies, as a cash payment from HMRC.
The value of the claim is not fixed. It depends on the structure of the company at the point of claim, the group relationships in place, and whether the company is loss-making or profitable.
The group connection rules
Under the merged R&D scheme, companies that are part of a group are assessed on their group-wide R&D expenditure and income. If a holding company has been installed above the trading company, the group connection rules may affect the rate of relief available, particularly if the group includes large company elements that would otherwise qualify for RDEC rather than the SME scheme.
The practical implication: if you are planning to install a holding company and you have a significant R&D claim in progress, the timing of the restructure matters. Installing the holding company mid-year can affect which scheme applies to the current year's claim.
Loss relief and R&D
R&D-intensive companies are often loss-making in their early years. The merged scheme allows loss-making companies to surrender losses for a cash credit at 10% of the surrenderable loss (or a higher rate for R&D-intensive companies). This credit is paid regardless of the company's tax position.
In a group structure, losses can be surrendered between group members under group relief rules. This can accelerate the use of R&D-generated losses against profitable group companies, rather than carrying them forward in the loss-making entity.
The capital structure interaction
R&D tax credits are calculated on qualifying revenue expenditure, staff costs, consumables, software, subcontractor costs. Capital expenditure on R&D assets is treated separately under the Annual Investment Allowance or R&D Allowances. The distinction between revenue and capital expenditure in an R&D context is not always straightforward, and the structure of the company affects how the costs are classified.
What to do before your next claim
If you are planning a restructure and you have an R&D claim in progress or anticipated, the restructure should be reviewed against the R&D rules before it is implemented. The cost of getting the timing wrong is a reduction in the credit value, potentially tens of thousands of pounds on a significant claim.
The Capital Audit identifies whether your current structure is optimised for your R&D position and flags any timing risks in a planned restructure.
R&D Credits and Capital Architecture
R&D tax credits are a Stability-layer tool. They reduce the corporation tax bill on qualifying expenditure. The Growth layer (a holding company above the R&D trading company) enables the credits and the capital they generate to be retained and deployed within the group rather than extracted at personal tax rates.
The Expansion layer is the constitutional architecture that governs how R&D capital is allocated across the group: which entities fund the R&D, how the credits are claimed, and how the IP generated by the R&D is held and protected within a structure that maximises its long-term value rather than just its short-term tax relief.