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R&D Tax Relief for SMEs: The Merged Scheme Explained
From accounting periods beginning on or after 1 April 2024, most UK companies claim R&D tax relief under a single merged RDEC-style scheme. Loss-making R&D-intensive SMEs can use Enhanced R&D Intensive Support (ERIS) for a higher rate.
Quick answers
What is the R&D tax relief merged scheme?
From April 2024, most UK companies claim R&D tax relief through one merged scheme that works like the old RDEC. It gives an above-the-line credit of 20% of qualifying R&D spend, with a net Corporation Tax benefit of roughly 15% for companies on the 25% main rate.
What is ERIS and who qualifies?
Enhanced R&D Intensive Support (ERIS) is a higher-rate route for loss-making SMEs whose R&D spend is at least 30% of total expenditure. They get an 86% additional deduction plus a 14.5% payable credit on the surrendered loss — about 27p per £1 of R&D spend.
What costs qualify for R&D tax relief?
Qualifying costs include staff (salary, employer NI and pension), externally provided workers, subcontracted R&D, consumables, software, cloud computing and data licences. Most overseas R&D costs no longer qualify unless geographical, regulatory or legal reasons make UK-based work impractical.
What changed in April 2024?
For accounting periods starting on or after 1 April 2024, the old SME R&D scheme and the large-company RDEC merged into a single scheme. A separate route — Enhanced R&D Intensive Support (ERIS) — exists only for loss-making, R&D-intensive SMEs.
The merged scheme
- Works like the old RDEC: an above-the-line credit of 20% of qualifying R&D expenditure
- Credit is taxable, so the net benefit is roughly 15% for companies paying the 25% main rate of Corporation Tax
- Available to companies of all sizes, subject to the qualifying conditions. Subsidy and contracted-out R&D rules must be assessed separately; doing work for another company does not automatically entitle the contractor to claim.
ERIS — for loss-making R&D-intensive SMEs
A company qualifies as R&D-intensive if at least 30% of its total expenditure is on R&D (reduced from 40% in April 2024). Qualifying SMEs can:
- Claim an 86% additional deduction on qualifying R&D spend
- Surrender the resulting loss for a 14.5% payable credit
- Net benefit ≈ 27p per £1 of R&D spend
What counts as R&D?
Work qualifies if it seeks an advance in science or technology by resolving scientific or technological uncertainty that a competent professional in the field couldn't readily deduce. Routine product changes, market research and pure data analysis usually don't qualify.
Qualifying expenditure
- Staff costs (salary, employer NI, employer pension)
- Externally provided workers (EPWs) — restricted, see below
- Subcontracted R&D — now claimable by the company that decides the R&D, not the subcontractor
- Software, consumables, cloud computing and data licences (since April 2023)
- Payments to clinical trial volunteers
Restrictions
- Overseas costs — generally restricted to UK-based EPWs and subcontractors, with narrow exceptions (e.g. geographical, legal or regulatory necessity)
- Connected-party subcontracting uses actual cost, not the invoiced amount
How to claim
- Pre-notify HMRC within 6 months of the period end if the company is a first-time claimant or hasn't claimed in the last 3 years.
- Submit an Additional Information Form (AIF) before the corporation tax return — required for every claim since August 2023.
- Include the claim in the CT600 and CT600L supplementary pages.
- Keep contemporaneous project records: technical narratives, time tracking, cost analysis.
Time limit
You have 2 years from the end of the accounting period to submit a claim.
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.
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