If your business is genuinely developing AI or software — not just using it — UK R&D tax relief is often the most valuable funding route available. But the rules changed in 2024 and the qualification bar is strict. Here’s how it works in 2026, cited to HMRC. (dgm implements osFoundry as an independent partner; we are not tax advisers — see the end.)
The 2024 reform: a merged scheme
From accounting periods beginning on or after 1 April 2024, HMRC replaced the old separate SME and RDEC schemes with:
- a single merged R&D Expenditure Credit (RDEC) at 20% (taxable) for most companies; and
- Enhanced R&D Intensive Support (ERIS) for loss-making, R&D-intensive SMEs.
For loss-makers under the merged RDEC, the notional tax rate applied is the small profits rate of 19% rather than the 25% main rate.
How much it’s worth
- Merged RDEC: 20% credit on qualifying expenditure.
- ERIS: loss-making R&D-intensive SMEs get an enhanced deduction plus a payable credit at 14.5%, worth roughly £27 from HMRC per £100 of qualifying R&D.
To qualify for ERIS, a loss-making SME must be R&D-intensive — R&D spend of at least 30% of total expenditure for accounting periods beginning on/after 1 April 2024 (it was 40% from 1 April 2023). There’s also a PAYE cap of £20,000 plus 300% of relevant PAYE/NIC liabilities.
What actually qualifies (the strict bit)
This is where most AI projects fall down. Software and AI development qualifies only where it seeks an advance in science or technology and resolves scientific or technological uncertainty (HMRC guidance). So:
| Likely qualifies | Likely does NOT qualify |
|---|---|
| Developing a novel model or algorithm | Using ChatGPT/Copilot in your workflow |
| Solving a genuine technical uncertainty | Routine configuration of a SaaS tool |
| Novel data/infrastructure engineering | Standard integration work |
If you’re simply adopting a commercial AI tool, that is not R&D — it’s deployment, and it doesn’t qualify. The relief rewards genuine technological advance.
It’s relief, not upfront cash
Crucially, R&D tax relief reduces your tax or provides a payable credit after you’ve spent on qualifying R&D and claimed it. It is not a grant and not a way to fund a purchase up front. Keep good contemporaneous records of the uncertainty you faced and the advance you sought — HMRC scrutiny of R&D claims has tightened.
Where osFoundry and dgm fit
Whether your AI work is genuine R&D or straightforward adoption affects both your tax position and your build approach. dgm helps you scope a project honestly — separating the genuinely novel development (potentially R&D-qualifying) from routine deployment — and implements it on osFoundry, which supports bring-your-own-key, usage pricing, and self-hosting in your own cloud for data control. For UK data-sensitive work we’d use an EU region or self-hosted deployment (osFoundry publishes US/EU/JP regions, not a UK one).
How dgm helps
dgm is an independent integration partner that builds AI capability; it has integrated zero companies so far and is not a tax adviser. R&D tax relief claims are a specialist discipline — work with your accountant or an R&D tax specialist. To scope an AI project and understand what part might be genuine R&D, book a consultation with dgm. This is general information, not tax advice; verify the rules with HMRC and a qualified adviser.