The UK introduced the R&D merged scheme for accounting periods beginning on or after 1 April 2024. The scheme replaces the previous SME and RDEC regimes for companies undertaking qualifying Research and Development.
Businesses who are carrying out projects with the intention of seeking to resolve a scientific or technological uncertainty may be able to claim tax relief on eligible R&D expenditure. This can reduce any existing Corporation Tax liabilities or in some circumstances, create a payable cash benefit.
The merged scheme forms part of the UK Government’s modernisation of the R&D tax relief system. The aim of the merged R&D scheme is to simplify the structure of the relief and improve compliance.
For accounting periods beginning on or after 1 April 2024, most UK companies claim R&D tax credit relief under a single merged scheme based on the RDEC model. This replaces the previous split between the SME scheme and RDEC for most claimants, creating a more consistent framework for claiming relief.
R&D tax relief is available to claim where a company undertakes projects that have attempted to resolve scientific or technological uncertainty. Below we have shared the differences between the old RDEC scheme and the new merged R&D scheme.
| Compare HMRC Merged Scheme & ERIS R&D Tax Relief Rates | ||||||
|---|---|---|---|---|---|---|
| Understand the requirements and key changes for R&D tax credits schemes | ||||||
| Company Type | Merged Scheme | ERIS: Enhanced R&D Intensive Support | ||||
| Primary Target | All Companies (default) | Loss-making R&D Intensive SMEs | ||||
| R&D Intensity Req. | None | ≥ 30% | ||||
| Benefit Mechanism | 20% Taxable Credit | 86% Add. Deduction + 14.5% Credit | ||||
| Cash Value (approx.) | Upto ~15%-16.2% of Spend | Upto ~27% of Spend | ||||
| Credit Taxable? | Yes: Taxable Income | No: Non-Taxable Cash Payment | ||||
| CNF Required? | Yes | Yes | ||||
Can't decide which scheme is right for your business? We understand finding the right scheme for your business is key!
For accounting periods starting on or after April 1, 2024, the UK has replaced the old R&D schemes with a Merged Scheme (taxable RDEC, generally 20%) for most companies, and the Enhanced R&D Intensive Support (ERIS) scheme for loss-making, R&D-intensive SMEs (offering ~27% benefit). ERIS requires 30% R&D intensity.
Merged Scheme (RDEC): Combines the old RDEC and SME schemes into an "above-the-line" credit. It is now the default scheme for most companies.For most companies, offering a taxable credit (15.5% for most, though some restrictions apply, with 20% in some contexts, but generally described in documentation as a 20% credit on qualifying expenditure, sometimes referred to as RDEC).
Who it's for: Large companies and SMEs not qualifying for ERIS.
Eligibility: The Limited company must be trading.
Benefit: An "above-the-line" expenditure credit, usually 20% of qualifying expenditure, which is taxable.
Prerequisite: A Claim Notification Form (CNF) form for R&D tax relief in the UK must be submitted to HMRC within 6 months after the end of the companies accounting period in which the R&D activity occurred and if the company is considered
a new claimant or has not claimed in the previous three years. For instance, if your accounting period ends on 31 December 2025, the deadline is 30 June 2026.
Key Features: Allows for subcontracted R&D costs to be claimed in more scenarios. It is subject to a PAYE cap of £20,000 plus 300% of PAYE/NIC liability.
Prerequisite: CNF submission
Cash Credit Rate: N/A (taxable)
Relief Rate: 20% expenditure credit
A company may be eligible to claim under the merged R&D scheme if it meets several areas of the eligibility criteria.
For the company to qualify they must:
For most companies, the merged scheme replaces the previous structure. However, loss-making SMEs that spend heavily on R&D may be eligible under the Enhanced R&D Intensive Support (ERIS) scheme, which offers a higher rate of relief. Learn more about ERIS here.
To be eligible for claiming R&D tax credits, the presence of uncertainty is a crucial piece of information to disclose. If a competent professional cannot readily determine how to achieve a technical outcome using existing knowledge, the work may qualify as R&D for tax purposes.
Businesses can claim R&D tax credits on qualifying expenditure that directly relates to the R&D activities undertaken.
Qualifying R&D expenses for tax relief in the UK generally fall into six primary categories of revenue expenditure (day-to-day operational costs).
Staff Costs:
Employee salaries, employer National Insurance (NI) contributions, and pension contributions for members of staff involved in the qualifying R&D projects.
Externally Provided Workers (EPW):
Costs relating to subcontractors or agency workers who contribute to qualifying R&D activities.
Software:
Software licences that were used directly in Research and Development work.
Consumables:
Materials, utilities, and other items consumed during experimentation, testing, or prototype development.
Data and Cloud Computing:
Costs relating to cloud computing services or datasets used in relation to qualifying activity on R&D projects.
Prototypes:
Design and Build costs for the design, construction, and testing of a prototype used to resolve technical uncertainty.
Only the proportion of these costs that relates directly to qualifying activity can be included in an R&D tax relief claim.
Capital Expenditure:
The cost of buying land, buildings, or machinery/equipment, which are generally covered under capital allowances.
Production and Distribution Costs:
Costs associated with the routine manufacturing, production, and distribution of goods or services for sale.
Routine Testing and Analysis:
Quality control testing, efficiency surveys, and routine data collection, as well as cosmetic changes to existing products.
Indirect Overhead Costs:
General office expenses, such as travel costs, rent, rates, utilities, heating, lighting (unless directly part of a lab/testing environment).
Intellectual Property Costs:
Expenses related to the creation, registration, or defense of patents and trademarks.
Specific Staff Costs:
Benefits in kind, dividends, and, in many cases, redundancy or recruitment costs.
Applies broadly to all companies undertaking qualifying R&D, regardless of size or profitability. Under the merged R&D scheme, qualifying R&D expenditure operates as an above-the-line taxable credit (the R&D Expenditure Credit). Relief is provided as a taxable expenditure credit which is brought into account as income in the Corporation Tax computation, rather than as an enhanced deduction. R&D tax relief under the merged scheme typically produces one of two outcomes.
Corporation Tax benefit: Profitable companies benefit from the taxable credit, which increases taxable profits but results in a net reduction in Corporation Tax payable. Effective benefit is approximately 15–16% of qualifying spend.
Payable cash credit: Subject to restrictions, companies may be able to surrender the credit in exchange for a payable cash credit amount based on qualifying R&D expenditure.
Qualifying expenditure generates an above-the-line R&D Expenditure Credit (RDEC), which is brought into account as taxable income in the Corporation Tax computation — not as an enhanced deduction.
Claims are submitted as part of the company's Corporation Tax return. The process involves five stages:
A: Moving forward the merged R&D scheme will apply to companies with accounting periods beginning on or after 1 April 2024.
A: For most companies, the choice between (SME & RDEC) no longer exists, both schemes have been replaced by the “merged scheme”. Only loss-making R&D-intensive SMEs may qualify and be eligible under the ERIS scheme instead.
A: Yes. This is a common question that claimants have when enquiring about R&D tax credits. Projects that fail may still qualify for R&D tax credits, provided they can clearly demonstrate a genuine attempt to resolve scientific or technological uncertainty. The outcome of the project is not a determining factor — the nature of the work is.
A: Yes, small companies can claim R&D tax relief. The company size does not determine the eligibility for claiming R&D tax credits. What matters and will be taken into account is whether the activity meets HMRC’s definition of qualifying Research and Development — specifically, whether it involves genuine scientific or technological uncertainty.
A: Yes, but the type of grant may affect relief eligibility.
A: Missing the Claim Notification Form deadline generally means you cannot submit a claim.
Since the introduction of the Additional Information Form (AIF) in August 2023, HMRC has collected structured information about R&D claims to improve compliance, reduce error and fraud, and support the...
Many UK businesses assume that only successful projects can qualify for R&D tax relief. In reality, HMRC does not assess an R&D claim based on whether a project achieved its...
Contemporaneous documentation is one of the most crucial areas of a compliant R&D tax relief claim. Rather than relying on estimates or post-project recollections, maintaining contemporaneous documentation will create a...
0161 457 8100
hello@alexanderclifford.co.uk
