What are the main differences between the R&D Merged Scheme and ERIS?

Although the R&D Merged Scheme and ERIS both provide tax relief for qualifying research and development expenditure, they work in different ways and are aimed at different types of businesses. 

The R&D Merged Scheme is the standard scheme and can be used by eligible companies carrying out qualifying R&D, including both SMEs and larger businesses. The relief is provided through a taxable expenditure credit, which is currently calculated at 20% of qualifying R&D expenditure. 

ERIS, on the other hand, is aimed specifically at SMEs that are both loss-making and R&D-intensive. Instead of receiving an expenditure credit, the company receives an additional deduction of 86% of its qualifying R&D expenditure. This gives a total deduction of 186% when the original 100% deduction is included. 

The way the relief is received is therefore one of the biggest differences between the two schemes. Under the Merged Scheme, the 20% expenditure credit is calculated from the company’s qualifying R&D costs. Under ERIS, a qualifying loss-making company can surrender some of its loss in exchange for a payable tax credit, which is calculated at 14.5% of the amount surrendered. 

There is also a difference in the eligibility requirements. A company does not need to be R&D-intensive or loss-making to claim under the Merged Scheme. ERIS has additional conditions, including the requirement for the company to meet the R&D intensity condition. For accounting periods beginning on or after 1 April 2024, this generally means that at least 30% of the company’s relevant expenditure must be on R&D. 

For companies that qualify for ERIS, there is a choice between the two schemes. However, the same qualifying R&D expenditure cannot be claimed under both ERIS and the Merged Scheme. This means businesses should consider their circumstances carefully before deciding which treatment is most suitable for their claim. 

In simple terms, the Merged Scheme provides an expenditure credit for companies carrying out qualifying R&D, while ERIS provides enhanced support for qualifying loss-making R&D-intensive SMEs. Companies eligible for ERIS can choose to claim under the Merged Scheme instead, but the same expenditure cannot be claimed under both schemes.