R&D Tax Relief & Patent Box (2024 Update)

For Founders & CEOs in UK Deep Tech, AI/ML, FinTech, SaaS, and Health-tech

If you’re a UK tech founder, R&D tax relief isn’t “just tax”—it’s a cash runway lifeline.
Every £100,000 in R&D tax credits can add 3–6 months of runway for a startup burning £100k–£150k/month.

From 1 April 2024, the UK merged the former R&D schemes (the SME scheme and RDEC — Research & Development Expenditure Credit) into a single, simplified R&D relief system.

This merged scheme only applies to accounting periods beginning on or after 1 April 2024. (Example: if your year-end is 31 March, you don’t move to the new scheme until 1 April 2025.)

The rules are clearer.
The compliance expectations are higher.
This guide shows what changed, what qualifies, and how to maximise cash without falling foul of HMRC or slowing down investors.

Acronyms Explained (Quick Guide)

• ERIS — Enhanced Research & Innovation Support (14.5% cash credit)
• CNF — Claim Notification Form
• AIF — Additional Information Form
• EPWs — Externally Provided Workers
• PAYE/NIC — Payroll tax cap rules
• RDEC — Research & Development Expenditure Credit (old large-company scheme)

Quick-Read: 5 Things UK Tech Founders Need to Know

Runway Rescue

ERIS (Enhanced Research and Innovation Support) gives loss-making, R&D-intensive startups a 14.5% payable cash credit.

One Simplified Scheme

The old SME R&D and RDEC schemes have merged into one unified R&D relief scheme with a standard 20% relief on qualifying R&D costs.

Patent Box = 10% Tax

Profits linked to a UKIPO (UK Intellectual Property Office) or EPO (European Patent Office) patent can be taxed at 10% instead of 25%.

Investor-Ready = Faster Funding

SEIS/EIS investors now expect clean technical narratives, cost breakdowns, CNF/AIF forms and evidence logs.

Scaling Globally?

Your R&D position must align with transfer pricing, VAT, and multi-entity structures.
(Only very large groups exceed the €750m threshold for Pillar Two, but early planning avoids future restructuring.)

Your Top Pain Points – And What the 2024 Rules Fix

1. R&D Tax Relief 2024: How the Merged Scheme Works

What Changed on 1 April 2024?

The SME R&D scheme and RDEC (Research & Development Expenditure Credit) have merged into a single scheme.

• Standard rate: 20% tax credit for qualifying R&D.
• ERIS retained: Enhanced cash-back for R&D-intensive loss-makers.

ERIS vs Standard Relief

20% credit typically delivers a 15%–21% net benefit depending on profit/loss position.

PAYE/NIC Cap – Founders Must Know This

Cash-back under ERIS is capped at:
£20,000 + 300% of your total PAYE & National Insurance Contributions (NICs).

Low payroll = limited cash credit.
This is one of the most expensive mistakes early founders make.

Founder Warning:
Most early-stage startups lose £30k–£70k because their payroll setup doesn’t meet the PAYE/NIC cap.

If you pay low salaries but high subcontractors, the cap WILL block some of your credit.

Does Your Work Qualify as R&D?

HMRC defines eligible R&D as work seeking a scientific or technological advance by overcoming uncertainties a competent professional could not easily resolve.

Sector-Specific Examples Founders Understand

Qualifying Costs

2. Patent Box 2024: Cut Tax to 10%

If your company owns or exclusively licences a UKIPO or EPO patent, you may reduce Corporation Tax from 25% → 10% on profits linked to that patent.

Profit Comparison

To Qualify, You Must:

• Hold a UKIPO or EPO patent.
• Have significantly contributed to development.
• Elect into Patent Box within 2 years of the end of the accounting period in which profits arise.

Best strategy:
Use R&D relief to fund development → use Patent Box to protect profits.

3. Documentation & Compliance: What Investors Expect in 2024

HMRC scrutiny is high since the merger.
Investors increasingly demand the same documents HMRC uses to test a claim.

You Must Keep:

• Project descriptions (advance, uncertainties, competent professionals).
• Cost breakdowns (time reports, payroll, cloud, subcontractors).
• CNF (Claim Notification Form) – required for first-time claims or if no claim in 3 years.
  • Deadline: within 6 months of year-end. You cannot submit an R&D claim unless the CNF has been filed first.
• AIF (Additional Information Form) – mandatory with every claim.

A simple founder checklist works fine — HMRC does not need a 40-page technical report.

If you can explain the uncertainty and your attempts to overcome it in plain English, you’re safe

Investor Tip

Add a one-page “R&D Summary + Runway Impact” slide to your data room.
This speeds up SEIS/EIS and VC due diligence.

4. Founder FAQs (Clear & Correct for 2024)

4.1 SEIS/EIS + R&D Relief – Can They Overlap?

Yes, they can coexist — but subcontracting rules differ.
Your structure must comply with both sets of legislation.

4.2 Do SaaS Businesses Need VAT Help When Expanding?

Absolutely.

• EU: Use the One-Stop Shop (OSS) for digital services VAT.
• US: SaaS is taxable in many states (e.g., Texas, New York). States vary — a nexus review is essential.
• UK: B2C digital services use destination-based VAT.

4.3 How Does Patent Box Work in Global Groups?

Profits must be allocated using transfer pricing.
Pillar Two applies only to very large groups (>€750m turnover), but early structuring avoids later problems.

Even if you’re below the €750m Pillar Two threshold, investors increasingly expect you to show awareness of Pillar Two during due diligence. We ensure your R&D, IP and group structure won’t cause problems later.

4.4 Do EMI Share Option Salaries Qualify for R&D?

Yes — if the team member contributes to qualifying R&D activities.

4.5 Can Outsourced AI Development Count as R&D?

• UK EPWs/subcontractors: Yes.
• Overseas subcontractors: Usually no, except in rare, well-documented situations tied to UK scientific uncertainty.
• Most founders don’t realise this is now one of the top reasons HMRC blocks claims, so document your “UK-first” decision clearly.

Final Thought

The 2024 R&D and Patent Box changes are some of the biggest shifts in 10 years.

Done right:
✔ £50k–£300k+ savings
✔ Extended runway
✔ Faster fundraising
✔ Lower HMRC risk

Done wrong:
✘ Lost cash
✘ Delays
✘ Penalties
✘ Slower investment rounds

TaxFlare — R&D, Patent Box & Global Tech Tax Specialists

We support founders at every stage:

• Pre-Seed/Seed: ERIS cashflow acceleration
• Series A: Investor-ready documentation
• Series B+: Transfer pricing, VAT, global structuring, future Pillar Two planning

All work is fixed-fee, founder-friendly, and ROI-led.

📞 Book your free R&D review today
Let us turn your innovation into cash.

The future may be uncertain, but your R&D tax relief doesn’t have to be.