Research and Development (R&D) tax relief: the merged R&D expenditure credit scheme and enhanced R&D intensive support

EnhancedThe intensivemerged supportR&D expenditure credit scheme and theenhanced mergedR&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 boththe aretwo thenew same,schemes are identical but the calculation of the credit amount is different. different.

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Even if you are eligible for for ERIS, you can choose to claim under the merged RDEC scheme, but you cannot claim under both schemes for the same expenditure.

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Who can claim 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 

ForThe expenditurerate of R&D expenditure credit under the merged scheme, the rate of R&DRDEC expenditurescheme credit is 20%.

Different rates apply to ring-fenced trades.

Enhanced R&D intensive support (ERIS)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 also 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-makingloss‑making SMER&D. Tointensive determine if your business is a SME, read CIRD91000 SME definition.

A A SME is is loss-making if it makes a trading loss for tax purposes before the additional deduction is taken.made. Unless you have such a trading loss, you will not be entitled to that deduction or any payable tax credit. credit, read CIRD91000 SME definition for more information on what a SME is.

To claim under ERIS, you also have to meet the following intensity condition.

Intensity condition 

A company meets the intensity condition if: if its:

• it’s claiming for an accounting period beginning on or after 1 April 2024 
• its 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.

ThereYou iscan also a grace period, which means you can 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 costs. 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: include any: 

• 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 
• any 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  intensive SMEs with with qualifying qualifying R&D expenditure expenditure can claim relief under the merged scheme instead. 

If your credit exceeds the PAYERDEC cap

Thescheme expenditure credit or tax credit amount you receive in the accounting period cannot exceed the PAYE cap, unless you’re exempt from the cap.instead.

The PAYE cap amount is £20,000 plus 300% of the company’s relevant PAYE and National Insurance contributions liabilities — read CIRD140000 for information on the PAYE cap.

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:on payments:

• payments to overseas contractors
• providersfor of 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 enhanced R&D intensive intensive,support, you may be able to claim merged RDEC for for that expenditureexpenditure, under the new merged scheme, 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

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You can applyfind 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 advanceloss-making SMEs based assurancein Northern Ireland.

You should continue to confirmread yourthis claimguidance willto befind accepted. out more about making a claim.

What you need to do next

You must 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.