The UK’s research and development (R&D) tax credit regime is an innovation incentive in which businesses can get up to 230% tax relief on qualifying R&D costs. Fintech companies are well-positioned to benefit from this tax credit regime as much of their work (e.g., software development) qualifies for relief. However, founders might assume that their businesses don’t meet the criteria, or they might not realize the value tax credits can provide.

Below, we’ll go over who qualifies for R&D tax credits, what His Majesty’s Revenue and Customs (HMRC) looks for when it assesses a claim, and the records businesses need to keep to support clean submissions.

Key takeaways

• Fintechs that invest heavily in engineering and product development are strong candidates for R&D tax relief, including companies that are pre-revenue or loss-making.

• The scheme has two main tracks depending on your company’s size and R&D intensity, and the enhanced scheme offers a higher benefit for qualifying loss-making smaller enterprises.

• Clean contemporaneous records are an important factor in whether a claim succeeds.

What are R&D tax credits in the UK?

R&D tax credits in the UK are a type of government tax relief that rewards businesses for investing in innovation, and there are two different schemes. The specific tax relief available depends on which scheme a company uses.

The UK’s Research and Development Expenditure Credit (RDEC) scheme is an innovation incentive available to large companies and profitable small- and medium-sized enterprises (SMEs). The tax incentive operates as an “above-the-line” tax credit, which means it’s logged as income on your profit and loss (P&L) statement rather than a deduction on your corporate tax bill.

There is also an Enhanced R&D Intensive Support (ERIS) scheme, which supports loss-making SMEs. An SME is considered loss-making if its business expenses are higher than its income for tax purposes before the additional deduction is made.

Who qualifies for R&D tax credits in the UK?

The UK’s R&D tax relief scheme is open to a wide range of companies. But there are eligibility requirements that determine whether you can claim.

Here’s what to know:

• Your company structure: You must be subject to Corporation Tax.

• Your project’s technical ambition: The work has to seek an advance in science or technology that an expert in the relevant field would recognize as an appreciable improvement, which means that characteristics must be changed or adapted so that something is considered better than the original. The advancement must extend beyond your business and further the field as a whole.

• Your intention to resolve uncertainty: You need to show how your team actively worked to overcome a technical problem for which a solution wasn’t available.

• Your employment and cost structure: Only certain cost categories count, and they generally have to be directly connected to the qualifying R&D activity. Some indirect activities qualify if they are adjacent.

What’s the difference between the RDEC and ERIS schemes?

Until April 2024, UK R&D relief operated through two largely separate schemes with different rates and mechanics. Since then, HMRC has consolidated them, but the structure still varies depending on your company’s size and R&D intensity.

Here’s how it works:

• Standard RDEC: Under the new merged RDEC scheme, the expenditure credit rate is 20%. The expenditure credit is taxable, and RDEC is declared as income.

• ERIS scheme: This scheme is geared toward loss-making SMEs with heavy R&D spending. It allows qualifying companies to deduct an additional 86% of their qualifying costs when they calculate their adjusted trading loss, as well as the 100% deduction already reflected in the accounts—in total, a 186% deduction. For a pre-revenue fintech burning most of its budget on engineering, this can be the difference between a meaningful cash injection and a modest tax reduction.

With contracted R&D work, generally only the party that initiates R&D can claim tax relief. If you’re using a contractor-heavy development model, examine this carefully with an advisor before you build your claim.

Don’t let the shift to the merged scheme catch you off guard. If you were previously claiming R&D tax credits under the old SME scheme and haven’t revisited your process since April 2024, your effective benefit rate might look different.

How does HMRC assess R&D tax credit claims in the UK?

Fintechs building their first claim need to understand what the process looks like.

Consider the following:

• The Additional Information Form (AIF): All new R&D claims must include an AIF submitted for each accounting period. It requires a description of each R&D project and the main field of science or technology involved.

• Senior officer sign-off: HMRC now requires that all claims be signed by a senior company officer. That’s a meaningful shift in accountability, and the person who signs off needs to understand what they’re approving.

• Technical uncertainty scrutiny: Your team must be able to articulate what they didn’t know at the start of the project, what they tried in order to find the answer, and why the answer wasn’t already publicly available.

• Cost attribution: Be careful not to overstate the proportion of time your engineers spent on qualifying work.

How do R&D tax credits apply to software and product development?

Software development presents specific challenges for R&D claims because the line between routine engineering and qualifying work isn’t always obvious from the outside. Keep the following in mind.

Routine development doesn’t qualify

When you implement a payment flow using well-documented application programming interfaces (APIs), build standard functionality, or integrate existing third-party tools, it sits outside the scheme. The underlying techniques are established, and there’s no technical uncertainty to resolve.

Fraud and risk modeling

Work that occurs when standard models perform poorly on your specific data distribution and your team has to develop new methods to improve accuracy without generating unacceptable false positive rates, is a candidate for a claim.

Low-latency transaction processing

Architecture that requires novel solutions to handle throughput or consistency constraints that off-the-shelf tooling can’t meet might qualify.

Machine learning (ML) infrastructure

When models themselves—or the pipelines needed to train and serve them at scale—involve research-level work that goes beyond applying established techniques to a new dataset, that work is likely to qualify.

Qualifying cost categories for software R&D

These categories include staffing costs (e.g., salaries, employer National Insurance [NI] contributions, and pension contributions) apportioned by time spent on qualifying work; software licenses used directly for the R&D; cloud computing costs, including data, compute, and storage, which were added to qualifying costs in April 2023; and consumables where relevant.

What records do you need to support an R&D tax credit claim in the UK?

HMRC doesn’t prescribe a specific format for R&D records. But it expects you to demonstrate clearly and credibly that the qualifying work happened, that it was technically uncertain, and that the costs you’ve claimed are accurately attributed to it.

Project documentation

You’ll need technical specifications, design documents, architecture decision records (ADRs), research notes, and anything else that captures what your team was trying to solve and why the answer wasn’t obvious at the outset. The goal is to show that the uncertainty was real.

Timesheets or time-tracking data

For employee cost apportionment, contemporaneous records generally carry more weight than reconstructed estimates made at the time of the claim. If your team doesn’t currently track time by project, start to build that habit now.

Payroll records

To support the staff cost calculations, you’ll need clear payroll data that shows salaries, employer NI contributions, and pension contributions for the employees included in the claim.

Contracts and invoices

When any externally provided workers or subcontractors are included in the claim, you’ll need documentation that shows the nature of the work, the cost, and the connection to qualifying R&D activity.

Software and cloud spend

You’ll need invoices or billing records that show what was spent, with enough detail to attribute costs to qualifying activities rather than general engineering overhead.

Retention period

HMRC can open an inquiry for years after a claim is filed, for example, when fraud is suspected. Keeping records for at least six years from the end of the relevant accounting period is a sensible baseline.

Are R&D tax credits in the UK worth claiming for fintechs?

Many fintechs will benefit from claiming R&D tax credits. Whether this form of tax relief makes sense for your specific business depends almost entirely on how carefully you approach the claim. If you have a loss-making, R&D-intensive fintech qualifying under ERIS, for instance, you might see a meaningful return. Early-stage fintechs that aren’t yet profitable can surrender losses in exchange for a cash payment under the ERIS scheme. That means if you have a pre-revenue company, you can use R&D relief to generate a direct cash return from your engineering investment.

Choose advisors who ask hard questions about your technical work rather than ones who seem most enthusiastic about the size of your claim. And keep your financial records clean. Financial reporting tools can help you maintain the kind of organized records that make R&D claims faster to prepare and easier to defend. They need to separate out relevant cost categories, keep clear attribution between projects, and produce the documentation your tax adviser needs to build a credible claim.

If you’re building technically ambitious products, you’re probably already doing work that qualifies. Rather than consider whether R&D tax credits are worth pursuing, make sure you’re set up to capture them properly.

How Stripe Revenue Recognition can help

Stripe Revenue Recognition helps to streamline accrual accounting—including audits, end-of-month close, reporting, and more—so you can close your books with greater efficiency and accuracy. It automates and configures revenue reports to help support compliance with ASC 606 and IFRS 15.

Revenue Recognition can help you:

• Gain a more complete view of your revenue: In the Stripe Dashboard, see all your Stripe transactions and terms, and import non-Stripe data.

• Automate revenue reports: Generate accounting reports that are ready to use—without engineering resources.

• Customise for your business: Create and automate custom rules to recognise revenue, in line with your business’s accounting practices.

• Audit in real time: Prepare for audits by tracing any revenue amount down to the underlying customers and transactions.

Learn more about how Revenue Recognition can help you comply with global accounting principles, or get started today.