Top 5 RDEC Claim Errors To Avoid

by Adam Park | May 28, 2026

Avoid these 5 common mistakes to ensure your RDEC claim is accurate and compliant:

Misclassifying projects under the wrong scheme: Post-April 2024, most companies fall under the merged R&D scheme, except for SMEs meeting the ERIS criteria. Misclassification can lead to lost or inflated claims.
Including non-qualifying costs: Avoid adding general expenses like rent, capital assets, or staff time unrelated to R&D. Only costs directly tied to addressing scientific or technological uncertainty qualify.
Mistreating subcontracted R&D and EPWs: Subcontractors and Externally Provided Workers (EPWs) have distinct rules. Missteps can result in incorrect cost claims.
Weak staff time and overhead apportionment: Use real-time records to allocate costs accurately. Vague or retrospective estimates often fail HMRC scrutiny.
Mismatched figures in CT600 and accounts: Ensure your RDEC figures align perfectly across all tax documents and statutory accounts to avoid rejections.

Quick Takeaway

Only include costs directly related to R&D activities.
Use clear documentation for staff time and project costs.
Match all figures in your CT600, CT600L, and statutory accounts.

By addressing these issues, you can maximise your RDEC claim while staying compliant with HMRC's rules. If you're also assessing whether historical claims can still be made, see our guide on how far back you can claim R&D tax credits.

1. Misclassifying Projects Under the Wrong R&D Scheme

Filing a claim under the wrong R&D scheme can completely derail your claim. To avoid this, it's crucial to confirm your accounting period's start date, as this determines which scheme applies to your business.

Before 1 April 2024, some SMEs had to switch to the RDEC scheme in specific situations. For example, this applied if the R&D work was subcontracted, the project received notified State Aid, or if costs were subsidised through a grant. This was a common pitfall, especially for companies receiving Innovate UK funding. After 1 April 2024, most companies will fall under the Merged Scheme, with one key exception: the Enhanced R&D Intensive Support (ERIS) scheme. ERIS is only available to loss-making SMEs that meet a 30% intensity threshold for qualifying R&D expenditure.

Getting this wrong can have serious consequences. Misclassifying under the old SME rules for a period that actually falls under the Merged Scheme is becoming a frequent mistake during this transitional period. The financial impact is significant: the SME scheme offered relief of up to 33.4% per £1 of expenditure, compared to a maximum of 20% under RDEC. Filing under the wrong scheme can either inflate your relief beyond what you're entitled to or, worse, leave potential relief unclaimed.

To avoid these errors, carefully check your company size against the relevant thresholds in our R&D guide. Additionally, review every project for grants or subcontracting arrangements to ensure you're claiming under the correct scheme. This level of precision can make all the difference in securing the relief you're eligible for.

2. Including Non-Qualifying Costs in RDEC Calculations

Adding non-qualifying costs to your RDEC claim is a surefire way to trigger an HMRC enquiry. The RDEC scheme is designed specifically for expenditure that addresses scientific or technological uncertainty. It doesn’t cover general business expenses or capital investments.

Some of the most common errors include adding costs like capital expenditure, general overheads (e.g., rent, rates, routine travel, and office supplies), and staff time spent on non-R&D activities. When it comes to capital assets, these should be claimed through Research and Development Allowances (RDAs), not RDEC. Misclassifying these costs inflates Step 1 of the RDEC calculation, which can throw off the entire process.

Costs for administrative and support staff are only eligible if they are directly connected to R&D activities. Similarly, other expenses must have a clear, documented connection to a specific R&D project to qualify. HMRC updated its guidance on 21 July 2023 to provide more clarity on when these costs are eligible. However, the bar for inclusion is high. It’s essential to review this guidance to ensure you meet the qualifying criteria. The table below outlines which costs qualify and highlights frequent mistakes.

"The distinction between direct and indirect costs can be helpful internally, but it should not be the deciding factor of how an R&D tax credit claim is prepared for submission. HMRC does not assess expenditure based on accounting labels." - Joshua Light, Head of Finance, Alexander Clifford

Cost Category	Qualifies?	Common Mistake
Salaries, employer NI, pension (R&D staff)	✅ Yes	Including time spent on routine operations
Administrative/support staff salaries	⚠️ Sometimes	Including without a documented link to the R&D project
Staff bonuses	⚠️ Sometimes	Not checking against July 2023 HMRC guidance
Materials used/consumed in R&D prototypes	✅ Yes	Including general office supplies or consumables
Capital equipment purchases	❌ No	Claiming via RDEC instead of RDAs
Rent, rates, general overheads	❌ No	Treating as indirect R&D support costs
General business software / routine IT	❌ No	Confusing with R&D-specific development tools

Another critical area to watch is the PAYE/NIC cap at Step 3, which is limited to £20,000 plus 300% of relevant liabilities. If you’ve mistakenly included non-qualifying staff costs in your payroll calculations, this will throw off the entire claim. HMRC pays close attention to such discrepancies during their reviews.

3. Incorrect Treatment of Subcontracted R&D and Externally Provided Workers

When it comes to subcontracted R&D and Externally Provided Workers (EPWs) under RDEC, getting the classifications right is crucial. These two categories are distinct, and mixing them up is a common mistake that can lead to inaccurate claims. The rules for each are different, and missteps here can throw off your calculations entirely.

Let’s break it down. A subcontractor is hired to complete a specific task and has the freedom to decide how to do it. On the other hand, an EPW is provided by a third party but works under your supervision and control. HMRC's guidance makes this clear: "Where one company carrying out R&D pays another company for the provision of workers or materials this is not subcontracting of the R&D." This distinction is key when applying the correct cost rules for third parties. Misclassifying these categories can undermine the accuracy of your claims.

Subcontractor Costs

For subcontractor costs to qualify, there must be evidence that the contract was agreed upon with R&D in mind. HMRC stresses the importance of the R&D being 'intended or contemplated' from the outset. Contracts need to demonstrate that you, as the client, specified that R&D would be performed - not just that a deliverable was required. Additionally, you must show that you had a significant degree of control and direction over the subcontractor’s work. Contracts that are vague or only describe an end product without referencing the R&D component are likely to raise questions during an HMRC review.

EPW Costs

For EPW costs, the main focus is on the worker’s tax status. To qualify, the worker’s earnings must fall under UK PAYE and Class 1 NICs. This rule is especially important given the upcoming overseas restrictions taking effect on 1 April 2024. If you can’t confirm the worker’s UK tax status, their costs won’t be eligible. Both subcontractor and EPW costs are also capped at 65% of qualifying expenditure for unconnected parties, a rule that’s often overlooked.

Factor	Subcontracted R&D	Externally Provided Workers (EPWs)
Control	Contractor decides "how" the work is done	Claimant supervises and directs the work
Primary Requirement	Contract must specify R&D intent	Worker earnings must be under UK PAYE/NICs
Overseas Rules	Limited to UK activity unless exceptions apply	Restricted to UK PAYE/NIC earners unless exceptions apply
Standard Rate	65% of relevant costs (unconnected parties)	65% of relevant costs (unconnected parties)

Balancing UK and Overseas Activities

When costs span both UK and overseas activities, they must be apportioned fairly. For example, you might divide costs based on the number of days or workers dedicated to UK versus overseas R&D. Don’t apply the 65% rate to the total payment without first excluding the non-UK portion. If only 50% of a contractor’s staff costs relate to UK activities, the claimable amount would be 32.5% of the total payment (65% × 50%) - not the full 65%. Keeping detailed records of where the work takes place is essential to ensure accuracy.

4. Weak Apportionment of Staff Time and Overheads to RDEC Activities

One of the most frequent mistakes in RDEC claims stems from poorly allocating staff time and overheads between R&D and non-R&D activities. Instead of relying on clear, documented methods, many businesses use subjective estimates. HMRC makes its expectations clear: "If you make estimates, you should arrive at the estimate using evidence and reason. You will need to show that you incurred the expenditure and that your estimate of the amount of qualifying expenditure is based on facts."

To meet these standards, businesses should use timesheets, project logs, or other contemporaneous records that detail how staff actually spent their time. Spreadsheets based solely on memory are unlikely to meet HMRC’s requirements. According to their guidance, claims are strongest when qualifying work and related costs are identified in real time. Keeping accurate and timely records is as essential here as it is for other aspects of RDEC claims.

When it comes to administrative and support roles, only those directly tied to R&D activities are eligible. General claims, such as stating that a finance manager or project co-ordinator provided support, won’t be enough. Without proper documentation showing specific involvement in R&D, these costs should be left out of the claim. This focus on detailed records echoes earlier advice on preparing accurate claims.

For costs related to Group-supplied Externally Provided Workers (EPWs), only the portion of their time spent on RDEC qualifying costs should be included. Claiming the full cost without accounting for time spent on non-R&D tasks is a common compliance issue that HMRC is likely to scrutinise. Keeping thorough documentation for EPWs ensures the precision required for RDEC claims.

Additionally, it’s crucial to allocate costs accurately across accounting periods. For instance, if your accounting period crosses 1 April 2023, you must divide the expenditure between the periods based on the number of days, rather than using a blended or incorrect 20% rate. Missteps in rate apportionment or inconsistent allocations can lead to errors and potential challenges from HMRC. Properly segmenting costs across periods helps maintain the consistency and accuracy your claim needs.

5. Figures in RDEC Calculations That Do Not Match the CT600 or Statutory Accounts

Once you've classified costs and allocated staff time correctly, the next step is ensuring all figures match across your documents. This alignment is crucial for submitting a compliant claim. Even a technically accurate RDEC claim can fail if the numbers in your CT600, CT600L, and statutory accounts don't match. HMRC requires these documents to align perfectly, and any inconsistencies can lead to a compliance check.

A frequent problem is how the RDEC credit is recorded as income. According to CTA09/S1042H, the credit must be recognised as trading income in both the statutory accounts and tax computations. If this isn't done consistently, your claim may be rejected. Another common issue is entering incorrect amounts in CT600 Box 660. For instance, mistakenly using the full R&D expenditure instead of the enhanced deduction can create immediate discrepancies.

The Additional Information Form (AIF) adds another layer of complexity. Since August 2023, the AIF must be submitted before the CT600, and it must reconcile completely with the CT600L. Taxpipe highlights this requirement:

"Failure to submit the AIF before filing will result in your R&D claim being rejected."

To prevent these errors, ensure your RDEC calculations align with the CT600, CT600L, and statutory accounts before filing. Use HMRC's statutory labels for cost categories and remember that subcontractor payments not connected to your company are capped at 65% of the invoice value.

If your claim spans an accounting period longer than 12 months, you'll need to submit separate claims for each period. Skipping this step can result in structural inconsistencies that may be hard to justify during an enquiry.

Comparison Table

RDEC Qualifying vs Non-Qualifying Costs: Quick Reference Guide

This table provides a concise overview of the key RDEC cost categories discussed earlier, serving as a handy reference. Accurate RDEC claims hinge on correctly identifying qualifying versus non-qualifying costs, as the legislation targets specific types of expenditure rather than general accounting classifications.

Cost Category	Qualifying (Include)	Non-Qualifying (Exclude)
Staffing	Salaries, employer NI, and pension contributions for time spent resolving technological uncertainty	General management oversight, routine admin, and time spent maintaining existing systems
Overheads	Utilities (water, fuel, power) directly used in R&D activities	Rent, business rates, and general office insurance
External Labour	EPWs under company supervision and control; subcontracted R&D (subject to scheme rules)	General consultancy not related to resolving scientific or technological uncertainty
Materials	Consumables used up or transformed in prototypes or testing	Materials included in a final product sold to customers; capital assets
Software & Cloud	Development tools, simulation software, and cloud computing for R&D	Software for routine business tasks (e.g., accounting or HR systems)
Other	Data licences used for R&D purposes	Marketing, commercial activities, routine travel, and recruitment

Additionally, here’s a breakdown of how EPWs (Externally Provided Workers) and subcontracted R&D costs differ:

Feature	EPWs	Subcontracted R&D
Supervision	Claimant company supervises, directs, and controls the work	Contractor independently manages their work to meet contract deliverables
Overseas rule	Eligibility depends on UK PAYE and Class 1 NICs status	Determined by the physical location of the R&D activities
Qualifying percentage	Typically 65% of the payment to the staff provider	Typically 65% of the payment to an unconnected contractor
Who claims	Always the company using the workers	Usually the customer who "intended or contemplated" the R&D

This comparison highlights the importance of proper cost categorisation, especially under the merged R&D scheme. As noted earlier, only the initiating customer can claim subcontracted R&D costs under the merged scheme - the subcontractor cannot.

Conclusion

To ensure your RDEC claim is successful, it’s crucial to avoid five common mistakes: misclassifying the scheme, including ineligible costs, confusing subcontracted R&D with externally provided workers (EPWs), poorly apportioning time, and submitting mismatched figures. Each of these errors can lead to a rejected claim, an HMRC enquiry, or a reduced credit. Knowing how to respond to HMRC enquiries is essential if your claim is challenged.

Here are some practical steps to help you stay on track:

Use real-time time-tracking instead of relying on retrospective estimates.
Confirm that every cost included directly relates to solving a scientific or technological uncertainty.
Ensure the Additional Information Form (AIF) is submitted before filing the CT600.

Taking these steps not only addresses current issues but also prepares your processes for upcoming changes.

From 1 April 2024, most companies will transition to the new merged R&D scheme. By perfecting your RDEC claims now, you’ll develop the habits and systems needed to handle this shift smoothly.

"Admin is now such a big part of R&D compliance, the tweaks matter." - Ian Davie, Senior Consultant, TBAT

Given the strict RDEC rules and HMRC's growing administrative requirements, it’s wise to consult a specialist like Zest R&D Tax Advisors. They assist UK companies in crafting precise, compliant R&D tax relief claims, covering everything from cost categorisation and technical narratives to AIF submissions and HMRC compliance support.

FAQs

Which R&D scheme should my company claim under for this accounting period?

For accounting periods beginning on or after 1 April 2024, most companies will transition to the new combined R&D Expenditure Credit (RDEC) scheme. However, the Enhanced R&D Intensive Support (ERIS) scheme will be available exclusively to loss-making SMEs that meet a 30% R&D intensity threshold. If your accounting period started before 1 April 2024, you should continue using the previous RDEC or SME schemes. For guidance on ensuring your claim is both accurate and compliant, Zest R&D Tax Advisors can provide expert assistance.

How can I prove staff time spent on R&D without formal timesheets?

If formal timesheets aren't available, HMRC allows alternative records to demonstrate staff contributions to R&D. Examples include project reports, technical notes, design documents, meeting minutes, or activity-based logs from tools like Jira or Git.

The key is to ensure these records are reliable, align with your technical narrative, and clearly connect staff activities to qualifying R&D projects. Additionally, reasonable time estimates based on roles can help support your claim.

What’s the quickest way to reconcile my RDEC figures with the CT600 and accounts?

When reconciling your RDEC figures with your CT600 and accounts, it’s crucial that the total R&D expenditure listed in your Additional Information Form (AIF) matches perfectly with the figures in your CT600 and any related schedules. Round all amounts to the nearest pound to minimise the risk of HMRC flagging your claim for review.

To stay on top of things, maintain a clear, written record of your claim methodology. Ensure your financial records, project accounts, and tax computations are all in sync. This will help you avoid discrepancies and reduce the likelihood of HMRC enquiries.