If you’re working on your own, the R&D tax relief landscape can often feel like a high-wire act. You want to offer the best service to your clients, but the stakes are high and the safety net now feels smaller than ever.
We are now well into the era of the Merged R&D Expenditure Credit (RDEC) scheme. With the effective date of 1 April 2024 firmly in the rearview mirror, many of your clients will have already completed their first accounting period under these new rules.
If you only handle a handful of claims a year, the “3AM worry” is likely to be: Is this claim robust? Did I ask the right questions? Is it going to stand up if there’s an enquiry?
The government has confirmed a pilot for a new Advance Assurance service launching in Spring 2026.
While we wait for that, the four specific areas HMRC has chosen for this pilot serve as a perfect “red flag” list for the difficulties solo advisors face right now.
If you are guiding a client through the Merged Scheme, these are the four pillars you must get right.
1. The “Definition” Trap: It’s Not About Functionality
The most critical area is whether a project meets the definition of R&D for tax purposes.
If you read the guidance in CIRD81910, it defines R&D as seeking an advance in science or technology by resolving scientific or technological uncertainty. On paper, that sounds manageable. But in practice, this is where most errors creep in. (Many companies still believe they are getting this right simply because they haven’t yet faced an enquiry that tests their understanding.)
Reading CIRD81910 can offer a false sense of security; the text seems straightforward, but applying it correctly is a different matter entirely. A common trap is focusing on functionality—what the product does—rather than the how the underlying technology has been improved. This often leads to the start and end points of R&D being incorrectly defined.
To get this right, you first need to identify the baseline state of that technology at the start of the accounting period. This requires a “Competent Professional” in that specific field to be able to evidence they exhausted the “industry playbook”. Your client must show that they looked at publicly available knowledge and standard tools and capabilities and found them wanting. The project’s advance can then be explained relative to that baseline, making it really clear for HMRC to see. R&D starts when the advance is defined AND the competent professionals start trying to resolve ‘technological uncertainty’. Broadly, these are the technical challenges that cannot be resolved using available knowledge or capabilities, or techniques easily derived from these.
The key point is that defining which parts of a project are R&D for tax purposes isn’t straightforward, especially when you don’t have anyone to bounce things off.
2. The Location Trap: Overseas Expenditure
The second area of focus is overseas expenditure. Under the old SME rules, a UK company could claim for developers or testing overseas without issue. That door has now largely closed.
Under the Merged Scheme, restrictions apply to payments for externally provided workers (EPWs) and sub-contractors. Generally, the contractor’s work must now be performed in the UK, or the workers must be subject to UK PAYE and Class 1 NIC.
There are limited exemptions, such as if the work is legally required to be done overseas or if
environmental conditions (like deep ocean research) cannot be reasonably replicated in the UK.
However, cost savings or worker availability are not valid reasons for exemption.
For advisors working alone, this is a vital early-stage check. If your client relies heavily on offshore teams, the value of their claim could significantly decrease. Identifying these early saves you and your client from wasting valuable time on a claim that might not be viable.
3. The “Ownership” Trap: Contracted Out R&D and who can claim
The third—and perhaps most confusing—area is determining who claims relief when one company (the customer) is contracting-out expenditure to another (the contractor).
Let’s say your client (Contractor B) is a software house built to deliver projects for a larger corporate customer (Customer A). Under the new rules, we have to look at which company “intended or contemplated” that R&D would be done to fulfil the contract. Was this A or B?
It is vital to review contracts (and other documents) at an early stage to determine who is eligible to claim. Under the new Advance Assurance pilot, it should be possible to seek clarification from HMRC on this specific point. In the meantime, you must look at what the facts say. If Customer A intended the R&D and has the technical competence to define and articulate it, the right to claim likely sits with them, not your client. Alternatively, it may be that Customer A simply defined the work to be done, and it was your client, Contractor B, that made the decision to undertake the R&D.
It is crucial for the companies involved to understand this rule; while your client may be keen to claim, if the contract clearly shows that the customer contracted the R&D to them, the claim sits with their customer. Proceeding with a claim for the contractor could expose them to a rejected claim and penalties. As a solo practitioner, you need to be confident you aren’t spending time working on claims that are technically invalid.
4. The Financial Trap: The PAYE/NIC Cap
Finally, it’s worth considering the exemption from the PAYE/NIC cap. The cap generally limits the payable credit to £20,000 plus 300% of the company’s relevant PAYE and NIC liabilities.
However, a company can be exempt from this cap if it meets two strict conditions. First, its employees must be creating, preparing to create, or managing Intellectual Property (IP). Note that this management activity must be done by employees. Second, its expenditure on connected party subcontractors or EPWs must not exceed 15% of its total qualifying R&D spend.
While in practice many companies are exempt from the cap, it’s good practice to double check this for each claim.
Don’t Walk the Tightrope Alone
Navigating these four areas requires more than just reading the manuals; it requires confidence in application. For advisors working on their own, the fear of the “brown envelope” from HMRC is often compounded by feelings of isolation. You might worry, “I don’t have a second pair of eyes to review my work. Have I done the right thing here?”.
This is where The R&D Community comes in. We provide the “professional safety net” that solo specialists are looking for. Instead of feeling alone or that you lack a support network, our members get “plugged in” to a hive mind of other specialists (all of whom are supported by us).
From our R&D helpline, which provides fast, responsive advice, to online training that helps you continually improve your professional expertise, we ensure you never have to second-guess your claims on your own.
