Research and Development tax relief: the merged scheme and enhanced intensive support
Find out if you can claim under the merged scheme R&D expenditure credit (RDEC) and enhanced R&D intensive support for accounting periods beginning on or after 1 April 2024.
There may be other steps you must complete before working out which relief you can claim. Check the steps you need to take to correctly claim R&D tax relief.
What the merged scheme is
The merged scheme R&D expenditure credit (RDEC) and enhanced R&D intensive support (ERIS) replace the old RDEC and small and medium-sized enterprise (SME) schemes for accounting periods beginning on or after 1 April 2024. The expenditure rules for both are the same, but the calculation is different.
You can choose to claim under the merged scheme even if you are eligible for ERIS, but you cannot claim under both schemes for the same expenditure.
Who can claim
The merged scheme is a taxable expenditure credit and can be claimed by companies who:
- are trading
- are chargeable to Corporation Tax
- have a project that meets the definition of R&D
This expenditure credit is liable to Corporation Tax as it is classed as trading income.
Expenditure credit rates
For expenditure under the merged scheme, the rate of R&D expenditure credit is 20%.
Different rates apply to ring-fenced trades.
Enhanced R&D intensive support (ERIS)
Enhanced intensive support allows loss-making R&D intensive SMEs to:
- deduct an extra 86% of their qualifying costs in calculating their adjusted trading loss, as well as the 100% deduction which already appears in the accounts (or in the computations as a result of s1308 CTA 2009), to make a total of 186% deduction
- claim a payable tax credit, which is not liable to tax and is worth up to 14.5% of the surrenderable loss
Companies registered in Northern Ireland should also refer to Research and Development (R&D) Tax Relief: Enhanced R&D intensive support for loss-making SMEs based in Northern Ireland.
Who can claim
You can only claim this relief if you are a loss-making SME. To determine if your business is a SME, read CIRD91000 SME definition.
A SME is loss-making if it makes a trading loss for tax purposes before the additional deduction is taken. Unless you have such a trading loss, you will not be entitled to that deduction or any payable tax credit.
To claim under ERIS, you also have to meet the following intensity condition.
Intensity condition
A company meets the intensity condition if:
- it’s claiming for an accounting period beginning on or after 1 April 2024
- its relevant R&D expenditure is at least 30% of its total expenditure (including that of any connected companies)
Generally, you will need to meet the condition for the period for which the claim is made.
There is also a grace period, which means you can claim if both of the following apply:
- you met the condition in your last 12-month accounting period
- you made a valid claim to SME relief or ERIS in that period on expenditure incurred on or after 1 April 2023
The periods you need to consider are:
- the accounting period for which the claim is made
- any periods of account of connected persons (worldwide) which overlap with the claimant’s accounting period
You’ll need to identify the costs that relate to the periods under consideration. For accounting periods aligned with the accounting period of the claimant, use the exact figures for that accounting period.
You must use a reasonable method to allocate costs of the connected company to the period of time covered by the accounting period of the claimant company where either
- there is a mismatch of accounting periods between the claimant and one or more connected company
- a connected company is overseas (and so has no accounting period for UK tax purposes)
In certain circumstances it may be appropriate to split costs on a time (day) basis. In other cases it will be necessary to consider when costs were incurred to give a fair result, for example, where R&D expenditure is incurred unevenly through a period. Any basis you choose should be used consistently and you should be able to explain effectively why you’ve used it.
Relevant R&D expenditure means costs on which R&D relief could be claimed for the period, whether or not a claim is actually made. Generally, it must also form part of the total relevant costs.
Total relevant expenditure includes:
- costs that are brought into account under Generally Accepted Accounting Practice (GAAP) in calculating the profits of a trade — if your accounts are prepared correctly under GAAP, this will be costs that feed into the profit before tax in your profit and loss account or income statement
- any pre-trading costs on which relief would be available under s1045 CTA 2009 SME scheme
- any amounts deducted in the tax computation under s1308 CTA 2009 Conditions to be satisfied — allowable as a deduction in computing the profit
It does not include:
- any amount of amortisation added back in the tax computation under s1308 CTA 2009 Conditions to be satisfied — allowable as a deduction in computing the profit
- any costs which consist of a payment, or other transfer of value, to another connected company
If you’re not a loss-making intensive SME
Profit-making and non-R&D intensive SMEs with qualifying R&D expenditure can claim relief under the merged scheme instead.
If your credit exceeds the PAYE cap
The expenditure credit or tax credit amount you receive in the accounting period cannot exceed the PAYE cap, unless you’re exempt from the cap.
The PAYE cap amount is £20,000 plus 300% of the company’s relevant PAYE and National Insurance contributions liabilities — read CIRD140000 for information on the PAYE cap.
If you’re claiming under the merged scheme and the amount exceeds the cap, any excess is carried forward as a Research and Development expenditure credit that you can claim in the next accounting period.
What you need to do next
If your company and project are eligible to claim R&D tax relief for small and medium-sized enterprises, you can apply for advance assurance to confirm your claim will be accepted.
You must check if you need to tell HMRC that you’re planning to claim this relief.
Updates to this page
Last updated 4 October 2024 + show all updates
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Updated the section 'Enhanced R&D intensive support' to clarify when a small and medium-sized enterprise is considered loss-making.
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Made it clear that all expenditure is subject to a payment condition, instead of some.
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First published.