Policy paper

Amending the rules in the enhanced support for R&D intensive small or medium-sized enterprises (ERIS) in Northern Ireland

Updated 12 November 2024

Who is likely to be affected

Loss-making small and medium-sized enterprises with a registered office in Northern Ireland that trade in goods or electricity and are eligible for the enhanced Research and Development (R&D) intensive support (ERIS).  

General description of the measure

This measure makes amendments to the ERIS rules for companies with a registered office in Northern Ireland to take account, in the cap on relief, of other support received by the company and replaces the current £250,000 cap.

Policy objective

The government is committed to supporting R&D investment across the UK. These changes reflect the particular market conditions in Northern Ireland and ensure consistency with the UK’s international obligations.

Background to the measure

After the R&D relief for small or medium-sized enterprises was replaced in April 2024 by the R&D expenditure credit (RDEC) an enhanced rate of payable credit was made available in the enhanced relief for R&D intensive loss-making small and medium-sized enterprises (ERIS). Variation to the ERIS scheme was introduced via regulations, to comply with international obligations.

Recognising the particular market conditions in Northern Ireland, companies with a registered office there are not subject to restrictions on relief for overseas R&D expenditure but there is a limit on the benefit they can receive, over and above the benefit they would have got had they claimed the R&D Expenditure Credit (RDEC) in any 3 year period.

Detailed proposal

Operative date

The proposed changes will apply to all claims by Northern Ireland companies made on or after 30 October 2024.

Current law

The ERIS scheme is in Chapter 2 of Part 13 Corporation Tax Act 2009. The particular rules applying in Northern Ireland are in ‘The Research and Development (Chapter 2 Relief) Regulations 2024 No 348’ (‘the Chapter 2 regulations’).

Proposed revisions

Legislation will be introduced in Finance Bill 2024-25 to repeal and replace the Chapter 2 regulations. The cap on benefit for most companies in Northern Ireland claiming ERIS will be €300,000 (with lower caps applying to the agriculture and fisheries sectors). Where expenditure takes a company above the cap it will be able to claim RDEC. The benefit a company receives under ERIS cumulates with other sources of relevant aid towards a rolling three-year limit. The ‘benefit’ is the value of relief claimed which is over the amount which could be claimed under the merged RDEC. Northern Ireland companies will still be able to claim relief for qualifying expenditure on payments for overseas activity, but this will now be provided by Chapter 2 of Corporation Tax Act 2009 rather than by the Chapter 2 regulations.

Consequential amendments will also be made to the ‘Research and Development Relief (Information Requirements etc) Regulations 2024’ to ensure that the data collected in the additional information form is relevant and appropriate to ensure compliance with reporting requirements. Changes to the additional information form, submitted when a company claims relief, will be made as soon as possible to align with the updated legislation.

Summary of impacts

Exchequer impact (£ million)

2024 to 2025	2025 to 2026	2026 to 2027	2027 to 2028	2028 to 2029	2029 to 2030
Negligible	Negligible	Negligible	Negligible	Negligible	Negligible

This measure is expected to have a negligible impact on the Exchequer.

Economic impact

This measure is not expected to have any significant macroeconomic impacts.

Impact on individuals, households and families

There is expected to be no impact on individuals as this measure only affects businesses. There is not expected to be an impact on family formation, stability or breakdown. 

Equalities impacts

It is not anticipated that there will be impacts on those in groups sharing protected characteristics.  

Impact on business including civil society organisations

This measure is expected to have negligible impact on a small number of companies (estimated to be on the low end of the hundreds). Companies with registered offices in Northern Ireland will now need to take into account other relevant aid received when claiming ERIS. Companies whose relief is capped are able to claim RDEC on expenditure not eligible for ERIS due to the cap.

One-off costs include familiarisation of the new legislation. This, coupled with the relatively small number of businesses in scope, means that one-off costs to business are not expected to breach the £5 million negligible threshold. Therefore, one-off costs are assumed to be negligible for this measure.  There are not expected to be any continuing costs.

Customer experience is expected to remain broadly the same as the technical change does not alter how businesses would interact with HMRC. 

This measure is not expected to impact civil society organisations. 

Operational impact (£ million) (HMRC or other)

HMRC impacts for this change include updates to IT and sharing of information which is estimated to be £2.5 million. Further compliance staff costs are still to be determined.

Other impacts

Other impacts have been considered and none have been identified.

Monitoring and evaluation

This measure will be monitored through information collected from claims and claim notifications.

Further advice

If you have any questions about this change, contact the R&D Policy team by email at randd.policy@hmrc.gov.uk.