Why UK R&D spend earns relief through the merged credit or the enhanced route, not both
The merged RDEC credit and its enhanced route for loss-making small firms set how much UK R&D spend can earn, which costs count and how claims are filed.
The UK's research and development tax relief now runs through one merged scheme for most R&D businesses. The merged RDEC credit and its enhanced route for loss-making, R&D-intensive small firms apply to accounting periods beginning on or after 1 April 2024. HMRC's guidance on the scheme was last updated on 8 January 2026.
A company can use one route or the other for the same spending, not both. For claimants, the detail decides how much relief a project earns, which payroll and overseas costs count, and whether a claim is filed on time.
What the merged credit pays
The standard merged credit is 20%. HMRC's guidance says the credit is taxable as trading income, and ring-fenced trades attract different rates.
For loss-making companies, the government's 2023 policy paper uses 19%, the small profits rate, as the notional tax rate. The existing RDEC uses the 25% main rate. The government said the merger would give a single set of qualifying rules and move the credit to an above-the-line mechanism, which it said would give more certainty.
The paper says the merger is meant to simplify the system and drive innovation, following a 2021 review of R&D reliefs. It estimates a negative Exchequer impact of £15m in 2024-25, rising to £205m in 2028-29, and about 87,000 companies will need to provide more information when claiming.
Who qualifies for each route
The merged RDEC is open to trading companies chargeable to Corporation Tax that carry out a project meeting the R&D definition. Profit-making and non-R&D-intensive SMEs with qualifying R&D expenditure can claim through this route.
The enhanced route, known as ERIS, is limited to loss-making SMEs that meet the SME definition and are R&D-intensive. A company is loss-making when it makes a trading loss for tax purposes before the additional deduction. Relevant R&D must make up at least 30% of total expenditure, counting the spending of connected companies.
A company can also qualify on the intensity test if it met the condition in its last 12-month accounting period and made a valid SME or ERIS claim on spending incurred from 1 April 2023.
The enhanced route gives loss-making, R&D-intensive small companies an extra 86% deduction on top of the usual 100%, for a total of 186%. It also provides a payable credit of up to 14.5% of the surrenderable loss, which is not liable to tax. A company eligible for ERIS can choose the merged RDEC instead, but cannot claim both for the same expenditure.
What counts as eligible spend
Qualifying spend includes costs that feed into profit before tax in the profit and loss account under GAAP, pre-trading costs on which SME relief would be available under section 1045 of the Corporation Tax Act 2009, and amounts deducted under section 1308 of the same Act.
Two categories are excluded: the amortisation added back under section 1308, and costs made up of a payment, or other transfer of value, to a connected company. The guidance's update history records that all expenditure is now subject to a payment condition, rather than some.
Payroll sets a ceiling. The credit cannot exceed £20,000 plus 300% of the company's relevant PAYE and National Insurance liabilities for the period, unless the company is exempt. For merged RDEC, any excess carries forward as a credit for the next accounting period. The policy paper says the merged scheme adopts the more generous SME PAYE and National Insurance cap.
The government's stated aims also include allowing more large companies to claim for the costs of contracted-out work. Under the merged scheme, a grant covering part of R&D costs does not reduce relief, because the subsidised-expenditure rules of the existing SME scheme will not carry forward.
How a claim is notified and filed
A company must notify HMRC online. A claim cannot be made after the notification window closes unless an exception applies. The exceptions are an R&D claim in the three years ending on the last day of the notification period, notification already made within that period, or an accounting period in the same period of account as another claimed or notified period.
The window runs from the first day of the period of account to the last day of the six months beginning with the first day after that period ends. SMEs may apply for advance assurance to confirm that their claim will be accepted.
Claims are made in the Company Tax Return or by amending it. The return includes accounts (original return only), computations, a CT600 and, for a payable ERIS or RDEC amount, a CT600L. Original returns and amendments are filed through the Corporation Tax Online Service, and every claim needs an additional information form completed online.
HMRC's manual says that if these requirements are not met, the claim is invalid. The amount of relief or credit must be quantified when the claim is made. A company that switches scheme in an amendment needs a new additional information form, even where the original return had one. For accounting periods beginning on or after 1 April 2024, boxes 675, L185 and L190 should not be completed.
HMRC has an administrative easement for companies affected by incorrect guidance published between 8 September and 17 October 2024. Those companies email randd.policy@hmrc.gov.uk under a subject line naming CIRD 183000. The easement does not change statutory filing obligations or the claim time limit.
“The enhanced route gives loss-making, R&D-intensive small companies an extra 86% deduction on top of the usual 100%, for a total of 186%.”
Time limits and late claims
A claim, amendment or withdrawal must be made within two years of the last day of the period of account where that period is no longer than 18 months. For longer periods, the limit is 42 months from the first day of the period of account.
HMRC has discretion to accept late claims. The manual says that discretion is exercised only in accordance with Statement of Practice 5 (2001).
If HMRC removes an ERIS claim on enquiry, the company may make or amend a claim to new RDEC for qualifying spend within 30 days of the closure notice. Where there is an appeal, the 30 days run from the date the appeal is finally determined.
Why location matters for R&D claims
Two rules turn on where work happens: the overseas expenditure restrictions and the Northern Ireland treatment for ERIS SMEs.
The guidance says there are restrictions on certain overseas expenditure, and the detailed rules sit in HMRC manual CIRD150000. SMEs with a Northern Ireland registered office claiming ERIS are not subject to the restrictions on payments to overseas contractors or overseas externally provided workers.
Those Northern Ireland companies must follow the Northern Ireland provisions unless they opt out. Opting out is available where activities involve no trade in goods and no relevant activities in the electricity market, and the company must say so in the online additional information form when claiming.
