Example: R&D Claim Under the Merged Scheme

Scenario

FraudShield Ltd is a profitable UK SME with a 31 March 2026 year-end (so the merged scheme applies). It spent the year building a real-time machine-learning fraud detection engine — assume a competent professional has established a qualifying advance and uncertainty under the government R&D guidelines; using machine learning alone does not establish eligibility.

Profit before R&D credit: £500,000. Corporation Tax rate: 25% (main rate).

Step 1: Identify qualifying expenditure

The amounts below are qualifying amounts after apportionment and statutory restrictions, not gross invoices. In particular, unconnected EPW payments are normally restricted to 65% of qualifying provision costs; contractor and overseas rules must also be satisfied.

(Overseas contractor of £30,000 was excluded because the work didn't meet the geographical/regulatory necessity exception.)

Step 2: Calculate the merged-scheme credit

Above-the-line credit = 20% × qualifying spend

= 20% × £465,000 = £93,000

Step 3: Tax treatment of the credit

The credit is taxable.

• Adjusted profit after adding the credit: £500,000 + £93,000 = £593,000
• Corporation Tax @ 25%: £148,250
• Less: the credit applied against the CT bill (subject to the 7-step process): £93,000
• CT actually payable: £55,250

Without the R&D claim, CT would have been £500,000 × 25% = £125,000.

Step 4: Net benefit

That's a net rate of 15% of qualifying spend — typical for a profitable claimant on the 25% rate.

Step 5: Filing the claim

1. Claim Notification Form — check HMRC’s notification rules and exceptions for previous claims; this example assumes no notification is required after those checks.
2. Additional Information Form — submitted before the CT600. Lists projects, technological advances, uncertainties, costs, and the senior technical lead.
3. CT600 with the CT600L R&D supplementary pages.
4. Submission deadline: 2 years after the end of the accounting period (31 March 2028 for this period).

Step 6: Records to keep

• Project plans showing the technological objectives
• Time-tracking by R&D engineers (typically 60–80% of paid time on this project)
• Invoices for cloud, software and subcontractors
• A short technical narrative (1–3 pages per project) covering the advance sought and the uncertainties resolved

What if FraudShield had been loss-making?

The merged scheme is an expenditure credit, not a surrender of trading losses. A loss-making claimant applies the statutory payment steps, notional tax and PAYE cap; trading-loss relief is considered separately. See HMRC merged scheme and ERIS guidance.

If R&D spend exceeded 30% of total expenditure and FraudShield was an SME, it could instead use ERIS: 86% additional deduction + 14.5% payable credit on the surrendered loss — net benefit ≈ 27p per £1.

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General guidance, not tax advice. Speak to a qualified accountant for advice tailored to your situation. Figures relate to the 2025/26 UK tax year. Source: HMRC, gov.uk.