Research and Development (R&D) tax relief: the merged R&D expenditure credit scheme and enhanced R&D intensive support
Find out if you can claim under the merged R&D expenditure credit (RDEC) scheme or enhanced R&D intensive support (ERIS) 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.
The merged R&D expenditure credit scheme and enhanced R&D intensive support scheme
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 qualifying expenditure rules for the two new schemes are identical but the calculation of the credit amount is different.
The objectives of these reliefs are to support and incentivise R&D, helping overcome a market failure (positive externality) which causes underinvestment in R&D.
Even if you are eligible for ERIS you can choose to claim under the merged RDEC scheme, but you cannot claim under both schemes for the same expenditure.
If your credit exceeds the PAYE cap
In either the merged RDEC scheme or ERIS, the credit amount you receive in the accounting period cannot exceed the PAYE cap for that period, unless you’re exempt from the cap.
If you’re claiming under the merged RDEC scheme and the amount exceeds the PAYE cap, any excess is carried forward as a Research and Development expenditure credit that you can claim in the next accounting period.
The PAYE cap amount is £20,000 plus 300% of the company’s relevant PAYE and National Insurance contributions liabilities for the period — read CIRD140000 for information on the PAYE cap.
The merged R&D expenditure credit
Who can claim
The merged RDEC 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
There are restrictions on claiming for some expenditure incurred overseas.
This expenditure credit is liable to Corporation Tax as it is classed as trading income.
Expenditure credit rates
The rate of R&D expenditure credit under the merged RDEC scheme is 20%.
Different rates apply to ring-fenced trades.
Enhanced R&D intensive support
Enhanced R&D 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
There are restrictions on claiming certain overseas expenditure. Companies with a registered office in Northern Ireland should 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 R&D intensive SME.
A SME is loss-making if it makes a trading loss for tax purposes before the additional deduction is made. Unless you have such a trading loss, you will not be entitled to that deduction or any payable tax credit, read CIRD91000 SME definition for more information on what a SME is.
To claim under ERIS, you also have to meet the intensity condition.
Intensity condition
A company meets the intensity condition if its:
- claiming for an accounting period beginning on or after 1 April 2024
- relevant R&D expenditure is at least 30% of its total expenditure (including that of any connected companies — read the Corporate Intangibles Research and Development Manual for information)
Generally, you will need to meet the condition for the period for which the claim is made.
You can also 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 — read the Corporate Intangibles Research and Development Manual for information
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 expenditure.
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
- costs which consist of a payment, or other transfer of value, to another connected company
If you’re not a loss-making R&D intensive SME
Profit-making and non-R&D intensive SMEs with qualifying R&D expenditure can claim relief under the merged RDEC scheme instead.
Companies registered in Northern Ireland and claiming enhanced R&D intensive support
If you’re a SME company registered in Northern Ireland and claiming enhanced R&D intensive support, you’re not subject to the restrictions for relief on payments:
- to overseas contractors
- for overseas externally provided workers (EPWs)
Find more information in CIRD150000 — R&D Tax Reliefs: reformed reliefs: overseas restrictions: contents.
If there is any expenditure you cannot claim as part of enhanced R&D intensive support, you may be able to claim merged RDEC for that expenditure, provided you meet the rules. For example, this may be due to the de minimis limits for the sector you are trading in. See CIRD125000 — R&D Tax Reliefs: reformed reliefs: ERIS: companies registered in Northern Ireland — HMRC internal manual — GOV.UK
Find more information in:
- CIRD110000 — R&D Tax Reliefs: reformed reliefs: new RDEC: contents
- Additional information you must submit before you claim for Research and Development tax relief
Companies with a registered office in Northern Ireland — How to opt out of the special rules
If your company has a registered office in Northern Ireland and claims enhanced R&D intensive support (NI ERIS) you must follow the Northern Ireland provisions.
You can choose to opt out if your business activities involve no:
- element of trade in goods
- relevant activities in relation to the electricity market
To opt out, you must tell us when you submit the additional information for your R&D claim. You do this by completing the online additional information form at the time you make your claim.
You can find out more about the Northern Ireland ERIS provisions and opting out in Research and Development (R&D) Tax Relief: Enhanced R&D intensive support for loss-making SMEs based in Northern Ireland.
You should continue to read this guidance to find out more about making a claim.
What you need to do next
You must check if you need to tell HMRC that you’re planning to claim this relief.
If your company is a SME, you may be able to apply for advance assurance to confirm your claim will be accepted.
Updates to this page
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Information has been added about if your credit exceeds the PAYE cap and How to opt out of enhanced Research and Development intensive support for companies registered office in Northern Ireland.
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A new section on ‘How to opt out of enhanced R&D intensive support (NI ERIS) for companies registered in Northern Ireland’ has been added to ‘Connected companies’. A new section on ‘Companies registered in Northern Ireland and claiming enhanced R&D intensive support' has been added to ‘If your credit exceeds the PAYE cap’.
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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.