UK R&D tax relief was reformed for accounting periods starting on or after 1 April 2024. Most companies now use the merged RDEC scheme, while loss-making R&D-intensive SMEs can claim the more generous ERIS scheme. This calculator estimates the credit and net benefit under each.
What changed on 1 April 2024
Before April 2024, UK R&D relief ran on two separate tracks: a generous SME scheme with enhanced deductions and a separate Research and Development Expenditure Credit (RDEC) for large companies. The merged scheme abolished that split. Now a single RDEC-style credit of 20% applies to all companies regardless of size, with the exception carved out for ERIS-eligible loss makers. The practical effect is that profitable SMEs moved from the old 230% enhanced deduction (effectively ~21.5p/£ net of 25% CT) to the new 15p/£ net — a reduction, but simpler and more predictable.
How each scheme computes the benefit
Under the merged RDEC scheme the credit is 20% of qualifying spend, given above-the-line and itself taxable, so the net benefit after corporation tax is roughly 15%:
merged_credit = 0.20 × qualifying_spend
net_benefit = merged_credit × (1 − CT_rate)Under ERIS, a loss-making SME with R&D at or above 30% of total expenditure adds an 86% enhanced deduction to its loss and surrenders that loss for a 14.5% payable credit:
enhanced_deduction = qualifying_spend × (1 + 0.86)
payable_credit = surrendered_loss × 0.145Worked examples
Merged RDEC — profitable tech startup: A startup with £300,000 of qualifying R&D spend (staff, cloud compute, and consumables) earns a gross credit of £300,000 × 20% = £60,000. At 25% corporation tax the net benefit is £60,000 × 75% = £45,000 — effectively 15p per pound of qualifying spend.
ERIS — R&D-intensive loss maker: A pre-revenue biotech spends £400,000 on qualifying R&D out of £500,000 total costs, so R&D is 80% of total — well above the 30% threshold. The enhanced deduction is £400,000 × 186% = £744,000, generating a surrenderable loss. At 14.5% the payable credit is approximately £107,880 in cash — over 27p per pound, far above what the merged scheme would deliver.
Practical guidance
Which scheme applies to you? If you are profitable or your R&D is below 30% of total costs, you are in the merged RDEC scheme. Only loss-making SMEs whose qualifying R&D hits or exceeds 30% of total expenditure qualify for ERIS.
What counts as qualifying expenditure? Staff salaries (including employers’ NIC and pension), agency workers, subcontractors (at 65% for unconnected third parties), consumables, software licences, and data and cloud costs used directly in resolving scientific or technological uncertainty. Routine testing, business-as-usual software maintenance, and improvements purely to the commercial offering do not qualify.
Common mistakes to avoid:
- Including capital expenditure, which is excluded (qualifying R&D capital can attract R&D Allowances separately).
- Claiming subcontractor costs at 100% rather than 65%.
- Forgetting the PAYE/NIC cap on the payable credit element — relief is capped at 3 × the company’s total PAYE/NIC liability for the year, plus £20,000.
- Treating software maintenance or customer-facing feature development as qualifying when the underlying uncertainty has already been resolved.
Merged RDEC vs ERIS side by side
| Merged RDEC | ERIS | |
|---|---|---|
| Who | All companies (default) | Loss-making SMEs, R&D ≥ 30% of total spend |
| Mechanism | 20% above-the-line taxable credit | 86% enhanced deduction + 14.5% payable credit |
| Approx net value | ~15p per £ of qualifying spend | up to ~27p per £ (as cash) |
| Cash to a loss maker | Yes (credit can be payable, capped) | Yes (payable credit) |
On £300,000 of qualifying spend, the merged scheme yields about £45,000 net; an ERIS-eligible intensive loss maker on the same spend can extract materially more in cash — which is why the 30%-intensity test is worth checking carefully.
Watch the overseas-expenditure restriction
Alongside the 2024 merger, HMRC restricted relief for overseas subcontractor and externally-provided-worker costs — broadly, such costs no longer qualify unless the work genuinely cannot be done in the UK (limited exceptions). Startups that offshore development should confirm which costs still qualify before claiming, as this is a common source of over-claims under the new rules.
Sources
- HMRC — Corporation Tax: R&D tax relief (merged scheme) — the 20% RDEC credit and rules.
- HMRC — Enhanced R&D intensive support (ERIS) for loss-making SMEs — the 86% uplift and 14.5% payable credit.
This calculator gives a planning estimate. The exact treatment of subcontractor costs, overseas spend restrictions, and the PAYE/NIC cap should always be checked with an R&D specialist before filing a claim with HMRC.