R&D Tax Relief Guide
How the UK’s merged R&D scheme and Enhanced R&D Intensive Support actually work, what costs qualify, and how to make a compliant claim.
How the Merged Scheme Works
From 1 April 2024, HMRC replaced the old SME scheme and large-company RDEC with a single merged scheme. Most companies, whatever their size, now claim the same above-the-line credit — with one important exception for loss-making, R&D-heavy SMEs. Here’s how the relief is actually calculated.
One scheme now covers almost everyone
For accounting periods starting on or after 1 April 2024, the merged scheme applies to companies of any size — small, medium or large, profitable or loss-making. It works like the old large-company RDEC: a taxable credit calculated as a percentage of qualifying R&D spend, sitting “above the line” in the accounts.
Credit = 20% × qualifying R&D expenditureThe credit is taxable, so the net benefit is lower than 20%
Because the credit counts as taxable income, Corporation Tax reduces its real value. A company paying the main 25% rate keeps roughly 15p of net benefit for every £1 of qualifying spend; a company on the 19% small profits rate keeps closer to 16.2p.
Net benefit ≈ 20% × (1 − Corporation Tax rate)R&D-intensive loss-makers get a better rate under ERIS
Enhanced R&D Intensive Support exists for loss-making SMEs whose qualifying R&D spend is at least 30% of total expenditure. Instead of the merged rate, they can claim a 14.5% payable credit on the surrenderable loss — a cash benefit worth roughly 27% of qualifying spend, paid even without a tax liability to offset it against.
ERIS payable credit = 14.5% of surrenderable lossSubcontracted R&D follows new rules
Under the merged scheme, the right to claim generally sits with whichever company decided to carry out the R&D and commissioned it — not automatically with the company that did the work, if it was contracted out to them. This is a meaningful change from parts of the old SME scheme and is worth checking carefully in any supply chain.
R&D Relief Quick Facts
Merged scheme & ERIS, at a glance
ERIS worked example
What Qualifies
Costs must relate to a project seeking an advance in science or technology and resolving a genuine scientific or technological uncertainty — not routine development work.
| Cost category | What’s included | Typical restriction |
|---|---|---|
| Staff costs | Salaries, employer NI and pension contributions for staff directly engaged in R&D | Apportioned by time spent on qualifying activity |
| Externally provided workers | Agency staff and contractors working under your direction | Typically restricted to around 65% of the payment |
| Subcontracted R&D | R&D work commissioned from another company | Generally restricted to around 65%; claim rights depend on who commissioned the work |
| Software | Software licences used directly in the R&D activity | Apportioned if used partly for non-R&D purposes |
| Consumables | Materials and utilities consumed or transformed during R&D | Only the portion actually used up in R&D |
| Data licences & cloud computing | Costs of data and cloud services used for qualifying R&D | Added as an allowable category from April 2023 |
| Clinical trial volunteers | Payments to participants in clinical trials | Must relate directly to the qualifying trial |
| Capital expenditure | Not claimable under R&D tax relief itself | May separately qualify for R&D capital allowances |
This is a general summary, not an exhaustive list. Correctly identifying qualifying activity — as opposed to routine engineering or design work — is usually the hardest and most contested part of a claim.
Merged Scheme vs ERIS
Almost every company defaults to the merged scheme. ERIS is the one exception, and it’s worth checking deliberately rather than assuming you don’t qualify.
| Feature | Merged scheme | ERIS |
|---|---|---|
| Who it’s for | All companies, any size, profitable or loss-making | Loss-making SMEs only |
| R&D intensity requirement | None | At least 30% of total expenditure on qualifying R&D |
| Headline rate | 20% above-the-line credit | 14.5% payable credit on surrenderable loss |
| Approx. cash benefit | ~15%–16.2% of qualifying spend | ~27% of qualifying spend |
| Taxable? | Yes, credit is taxable income | No, paid as a cash credit |
| Applies from | Accounting periods starting on/after 1 April 2024 | Accounting periods starting on/after 1 April 2024 |
The Road to the Merged Scheme
R&D tax relief has changed significantly over a short period. Here’s the sequence that led to today’s rules.
R&D Relief FAQ
Answers to the questions companies most often ask when working out whether — and how much — they can claim.
For accounting periods starting on or after 1 April 2024, most companies claim under the merged scheme, which gives a 20% above-the-line credit on qualifying R&D expenditure. After Corporation Tax, this works out at roughly 15% to 16.2% of qualifying spend depending on the company’s tax rate. Loss-making R&D-intensive SMEs can instead claim under ERIS at a 14.5% payable credit rate, an effective cash benefit of around 27%.
ERIS, Enhanced R&D Intensive Support, is a higher rate of relief for loss-making SMEs whose qualifying R&D expenditure is at least 30% of their total expenditure. Eligible companies receive a 14.5% payable credit on the surrenderable loss rather than the standard merged scheme rate, which is worth considerably more in cash terms for genuinely R&D-heavy loss-making businesses such as early-stage tech and life sciences companies.
Qualifying costs typically include staff costs for those directly engaged in R&D, subcontractor and externally provided worker costs (subject to restrictions), consumable items, software, data licence and cloud computing costs used for R&D, and payments to clinical trial volunteers. Costs must relate to a project that seeks an advance in science or technology and resolves scientific or technological uncertainty, not routine engineering or design work.
Often, yes. Companies making a first-time claim, or that have not claimed in any of the three preceding accounting periods, must submit an Advance Notification Form within six months of the end of the relevant accounting period, or they lose the ability to claim for that period entirely. An Additional Information Form is also mandatory for every claim, submitted before the Company Tax Return.
The rules changed significantly under the merged scheme. Broadly, where R&D work is contracted out to another company, the right to claim generally sits with the company that decided to do the R&D and commissioned it, not the subcontractor carrying it out, with some exceptions. This is a reversal from parts of the pre-2024 SME scheme and catches many businesses out when they assume the old rules still apply.
Under the merged scheme and ERIS, grants and subsidies no longer restrict which scheme a company can claim under, which removes a significant complication that existed under the old SME scheme. Subsidised expenditure still needs to be correctly identified and treated within the claim, so it remains worth checking with an adviser rather than assuming grant income has no effect at all.
Intensity is measured as qualifying R&D expenditure divided by total company expenditure, expressed as a percentage. A company needs this to be at least 30% to access ERIS, alongside being loss-making for tax purposes and meeting the SME size criteria. Companies close to the threshold should check the calculation carefully each year, since intensity can shift a business in or out of eligibility.