Short answer
For accounting periods beginning on or after 1 April 2024, the UK replaced its separate SME and RDEC schemes with a merged R&D expenditure credit worth 20% of qualifying spend. Loss-making SMEs that spend at least 30% of their total expenditure on R&D can instead claim Enhanced R&D Intensive Support (ERIS): an 86% extra deduction and a payable credit of up to 14.5% of the surrenderable loss, worth up to about 27% of qualifying spend.
Key facts
| Merged scheme | ERIS | |
|---|---|---|
| Who | Any company doing qualifying R&D | Loss-making SMEs with R&D ≥ 30% of total spend |
| Benefit | 20% taxable credit | 186% deduction + up to 14.5% payable credit |
| Approx. cash value | ~15–16% of qualifying spend after tax | Up to ~27% of qualifying spend |
| Taxable? | Yes | No |
| PAYE/NIC cap | £20,000 + 300% of PAYE/NIC (unless exempt) | Applies |
How the merged scheme works
The company calculates 20% of its qualifying R&D expenditure as a credit. The credit is added to taxable profits, then used to pay Corporation Tax or paid out in cash. For a loss-making company, a notional tax deduction is applied before the cash is paid. The net value is roughly 15–16% of qualifying spend.
How ERIS works
ERIS is for SMEs that make a trading loss and spend at least 30% of their total relevant expenditure, including connected companies, on R&D. The company deducts an extra 86% of qualifying costs, increasing its loss, then surrenders that loss for a payable credit of up to 14.5%. A company that met the test in its previous period can sometimes still qualify if it narrowly misses it.
Illustrative example
Illustrative example. A loss-making SME spends £500,000 on qualifying R&D.
- Merged scheme: 20% credit = £100,000, about £81,000 after the notional tax deduction.
- ERIS (if R&D is at least 30% of total spend): £500,000 × 186% = £930,000 surrenderable × 14.5% = about £134,850.
What changed in April 2024
- One merged scheme replaced the SME and large-company schemes for most companies.
- Restrictions on overseas subcontractors and workers began.
- The company that decides to do the R&D generally claims for subcontracted work, rather than the subcontractor.
- Rules on grant-funded (subsidised) costs changed. See claiming R&D tax credits on a grant-funded project.
Related: R&D Advance →
Related questions
Which scheme should my company use?
Your adviser will check whether you meet the ERIS conditions. If you do, ERIS usually gives more cash; if not, you claim under the merged scheme.
Does the old SME scheme still exist?
Only for accounting periods that began before 1 April 2024.