R&D Tax Credits: How the Merged Scheme and ERIS Work

R&D tax credits are a Corporation Tax relief for companies whose projects seek an advance in science or technology. For accounting periods that start on or after 1 April 2024, they work through the merged scheme’s taxable 20% credit or enhanced R&D intensive support (ERIS), which pays loss-making, R&D-intensive SMEs a higher payable credit.

A project that failed can still qualify. A claim without the right expert behind it isn’t so lucky: where no competent professional had identified the advance being sought, HMRC has cut some claims to nothing.

This guide covers R&D tax credits for UK companies under the current rules. It isn’t a substitute for HMRC’s own guidance, and these four things can change the answer:

• Your company may make a profit or a loss.
• Its R&D may be a large or small share of its spending.
• Some of the work may have been contracted out.
• Your accounting period may have started before or after 1 April 2024.

Don’t overlook the dates: if your company needs a claim notification form and misses the window, an otherwise valid claim for that period is invalid.

R&D tax credits now run through two routes

Any qualifying company can use the merged R&D scheme. HMRC calls it the merged R&D expenditure credit (RDEC) scheme, and it’s open to trading companies within the charge to Corporation Tax whose project meets the R&D definition.

The credit is worth 20% of your qualifying spending. It counts as taxable trading income, which is why its value after tax is lower than the headline rate.

Enhanced R&D intensive support is the alternative for a narrower group. To use ERIS, your company needs to be an SME, to have a trading loss before the extra R&D deduction, and to pass an intensity test: its relevant R&D spending has to be at least 30% of its total relevant spending, counting connected companies.

The test generally applies to the period you’re claiming for, although meeting it in the previous 12-month period can be enough in some cases. HMRC’s guidance on the merged scheme and ERIS has the full conditions and points to the SME definition.

You don’t have to use ERIS just because you qualify. A company that passes the test can choose the merged scheme instead, but it can’t claim the same spending under both.

R&D tax credits for small businesses work through these same two routes. Size alone doesn’t decide it: a profitable SME, or one that isn’t R&D-intensive, claims under the merged scheme.

Older periods follow older rules. An accounting period that began before 1 April 2024 still sits under the previous SME scheme or the old RDEC, so R&D tax relief for an early-2024 period can work differently from a claim for 2025.

What qualifies for R&D tax credits comes down to two tests

The definition comes from guidelines published by the Department for Science, Innovation and Technology (DSIT). Your project has to seek an advance in science or technology, meaning progress in what the whole field knows or can do, not just in your own business.

It must also resolve some scientific or technological uncertainty along the way. That exists when a competent professional working in the field couldn’t readily work out whether the advance is possible, or how to achieve it in practice.

A competent professional is someone with real knowledge and experience in the relevant field. Whether a project clears this bar is a judgement, and the additional information form asks you to set out the uncertainties for each project you describe.

Success isn’t required. A project that aimed for an advance can still count if it failed or was abandoned.

Science here excludes the arts, humanities and social sciences, economics included. Mathematical advances have been treated as science since April 2023.

R&D tax credits for software development follow the same basic criteria as any other field. Routine work, copying or adapting what already exists doesn’t count; the project has to aim at an advance that a competent professional couldn’t readily achieve.

Some supporting work counts as well. Qualifying indirect activities include administration, finance and personnel work done for the R&D, and training that directly supports the project.

Which costs count, and the 65% rule

R&D tax credit qualifying costs come from a defined list, and only the share linked to the project counts. The main categories are:

• Staff costs for the time employees spend on the project, including salaries, wages, bonuses, pension contributions, employer Class 1 National Insurance and training.
• Externally provided workers, meaning staff supplied to you by another business.
• Payments for R&D you contract out to another company.
• Consumables used up in the work, including materials, fuel, power and water.
• Software used for the R&D, with a reasonable share where it’s also used elsewhere.
• Data licences and cloud computing costs.
• Payments to clinical trial volunteers.

Some costs are excluded outright, including capital spending, land, rent and rates, patents and trademarks, redundancy pay, and the cost of producing or distributing your goods and services. Costs also have to be paid before you make the claim.

Contracted-out work is where the 65% comes in. Pay an unconnected company to do part of the R&D and you can count 65% of the payment; for a connected company, it’s the lower of what you paid and the contractor’s own relevant costs.

The same 65% applies to externally provided workers from an unconnected staff provider.

Only the company that decided the R&D was needed, and planned it, can claim for contracted-out work. If a customer set the problem as part of a contract, the claim may sit with the customer rather than with you.

Location matters too. You can’t claim for contracted-out R&D carried out abroad, apart from some exceptions, and payments for externally provided workers whose earnings aren’t subject to UK PAYE are restricted as well.

A grant or subsidy doesn’t restrict what you can claim under the merged scheme or ERIS.

R&D tax credit rates: what a claim is worth

The headline R&D tax credit rates are 20% under the merged scheme and, for ERIS, an extra 86% deduction plus a payable credit of up to 14.5% of the loss you surrender. Percentages like these don’t turn straight into cash, so here’s how they play out on £100,000 of qualifying spending.

The figures below are illustrative. They ignore other reliefs and the rest of each company’s tax position.

A profitable company on the merged scheme

The credit is £20,000. Because it’s taxable, a company whose profits are taxed at the 25% main rate of Corporation Tax pays £5,000 of tax on it, leaving a net benefit of £15,000, or 15% of the spending.

A loss-making company on the merged scheme

R&D tax credits for loss-making companies work a little differently. With no Corporation Tax bill to reduce, HMRC deducts notional tax from the £20,000 at the 19% small profits rate, which is £3,800, and that £3,800 is carried forward to set against Corporation Tax in later periods unless it’s surrendered to a group company.

The remaining £16,200 can then be paid out, subject to the PAYE cap and the conditions below. If you’re looking for an R&D tax credit refund, this payable credit is the cash you’d receive.

A loss-making, R&D-intensive SME on ERIS

Now take an SME whose relevant R&D spending of £100,000 is a third of its £300,000 total relevant spending, so it passes the intensity test. Before the extra deduction, its trading loss is £150,000.

The extra 86% deduction adds £86,000, taking the loss to £236,000. The surrenderable loss is the lower of that figure and 186% of the qualifying spending, which is £186,000.

At 14.5%, surrendering £186,000 produces a payable credit of £26,970, and the remaining £50,000 of loss is left to carry forward. That’s £10,770 more in immediate cash than the £16,200 the same company could get under the merged scheme, although the two routes leave different losses to carry forward, and the ERIS credit itself isn’t taxable.

The intensity test is “at least” 30%, so a company sitting at exactly 30% passes.

The PAYE cap and getting paid

Cash payments are capped at £20,000 plus 300% of the company’s relevant PAYE and National Insurance liabilities for the period, unless it’s exempt, and any excess is carried forward. A company with £30,000 of those liabilities would have a cap of £110,000, comfortably above either payment here.

Under the merged scheme, the credit first goes towards Corporation Tax and other HMRC debts. Any cash payment normally depends on the company being a going concern, having no open enquiry, and being up to date with PAYE and VAT.

How to claim R&D tax credits in three filings

Claims are made online, and the order of the filings matters:

1. Send the R&D claim notification form, if it’s your first claim or your last one was more than three years before the end of your notification window.
2. Submit the R&D additional information form, which every claim needs, on or before the day you file your Company Tax Return.
3. File your Company Tax Return (CT600), marking box 656 for the notification and box 657 for the additional information form, and complete the CT600L supplementary page (for ERIS, only when you’re claiming a payable credit).

The additional information form names your main senior R&D contact and any agents, and describes your projects: the field, the baseline, the advance you were after, the uncertainties and how you tried to resolve them.

With more than three projects, you generally describe at least three that between them cover half or more of the qualifying spending.

Filing both on the same day? Submit that form before the return. If the return arrives without it, HMRC removes the R&D claim from the return, and HMRC’s guidance on the additional information form explains what each section needs.

Agents can submit the notification and the additional information form for you, but the facts in the claim remain your company’s responsibility.

Want certainty on a tricky point first? HMRC’s targeted advance assurance service, first published in May 2026, lets an SME ask about up to two areas of a claim, such as whether a project counts as R&D or whether overseas costs qualify.

HMRC aims to deal with a complete application within 40 calendar days, and a refusal can’t be appealed. First-time claimants may also be able to apply for full advance assurance on the whole claim.

The R&D tax credit claim deadline is really two dates

The R&D tax credit claim deadline is two years counted from the last day of your period of account, provided that period is 18 months or shorter. Within that window you can make, amend or withdraw a claim, and HMRC can accept a late claim at its discretion.

The earlier date is the one that catches people out. If you need to notify, the window opens on the first day of your period of account and closes six months after it ends.

Miss it and the claim for that period is invalid, no matter how good the R&D behind it. The notification guidance shows how the window is worked out for longer periods.

Take a period of account running from 1 April 2025 to 31 March 2026. A company that needed to notify had to do it by 30 September 2026, yet it has until late March 2028, two years counting from 31 March 2026, to make the claim itself.

The three-year look-back runs from the last day of the notification window, so a gap between claims can bring the requirement back even if you’ve claimed before.

Before you claim R&D tax credits

R&D tax credits come down to two questions: which route your company is on, and whether it meets the filing dates. Any qualifying company can use the merged scheme’s 20% taxable credit, while a loss-making SME that passes the 30% intensity test can choose ERIS instead.

The project has to seek a genuine advance by resolving uncertainty a competent professional couldn’t readily resolve, and only costs in the listed categories count. Check early whether you need a claim notification form, send the additional information form before your return, and keep the two-year window in view.

The relief works inside Corporation Tax, so the corporation tax guide is the place to check the rates, returns and payment dates it interacts with.

Key Takeaways

• For accounting periods that start on or after 1 April 2024, R&D tax credits are claimed through the merged scheme’s 20% taxable credit or, for loss-making R&D-intensive SMEs, through ERIS.
• A project qualifies only if it seeks an advance in science or technology by resolving uncertainty a competent professional couldn’t readily resolve, and a failed project can still count.
• Costs have to fall within the listed categories and be paid before you claim, and payments to unconnected contractors for UK work count at 65%.
• On £100,000 of spending, the illustrative examples here come to £15,000 net for a main-rate payer, £16,200 for a loss-making company on the merged scheme and £26,970 under ERIS.
• Every claim needs an additional information form before the return, and some also need a claim notification form within six months of the period of account ending.
• The claim itself can generally be made or amended up to two years from the end of the period of account.