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Two accounting cycles on from 1 April 2024, the merged R&D scheme is no longer the new regime.
For most of your clients, the old conversation about whether they fell under SME rules or RDEC should be a distant memory, replaced by one framework and one rate.
The exception and increasingly the area where clients need the most guidance, is Enhanced R&D Intensive Support (ERIS) for loss-making SMEs and the 30 per cent intensity threshold that sits underneath it.
This matters for advisers because HMRC is not treating the threshold as a formality.
Intensity calculations, particularly for clients with connected companies or overseas subsidiaries, are one of the areas attracting the closest scrutiny.
Getting the groundwork right at the advice stage saves a great deal of difficulty later.
One scheme, not two
As you will be aware, for accounting periods beginning on or after 1 April 2024, the former SME and RDEC schemes were consolidated into a single merged scheme, available to companies of any size.
It operates as an above the line credit, currently set at 20 per cent of qualifying R&D expenditure and brought into account as taxable income before being set against corporation tax or, in some cases, paid out directly.
Most of your client base, profitable or not particularly R&D intensive, will now sit here by default.
The ERIS threshold
A second route remains for loss making SMEs with a high concentration of R&D spend.
Enhanced R&D Intensive Support preserves something closer to the old SME scheme, so that a 186 per cent total deduction against qualifying costs and a payable credit worth up to 14.5 per cent of the surrenderable loss applies, giving a net benefit of up to around 27 per cent.
The qualifying bar for ERIS is R&D intensity of 30 per cent or more of total expenditure.
That figure was lowered from 40 per cent for accounting periods beginning on or after 1 April 2024, specifically to widen access to the enhanced rate.
Intensity itself is calculated simply, as qualifying R&D expenditure divided by total relevant expenditure for the period. The complexity comes in what counts as total expenditure and in whose expenditure gets counted at all.
Why connected companies add complexity
Where a client sits within a group, or has associated or connected companies as HMRC defines them, the intensity ratio is not calculated on that company alone.
Total expenditure and qualifying R&D spend must be aggregated across the connected group, including entities based overseas.
This is a deliberate anti-fragmentation rule, designed to stop a group routing its more R&D intensive activity through a single thinly capitalised entity to clear the threshold artificially.
In practice it means a client’s eligibility can shift depending on group structure decisions made for entirely separate commercial reasons and HMRC has confirmed this is an area it is actively checking, particularly where overseas connected companies are involved.
Genuine group restructuring, a cost sharing agreement between related entities or simply how overseas subsidiary costs are apportioned can move a company across the 30 per cent line in either direction.
A one-year grace period exists where a company has previously met the threshold and dips below it, which is worth flagging early to clients whose intensity is close to the threshold.
What this means for the advice you give
A few checks are worth building into the claim process for any client group structure, before the numbers go anywhere near a return.
Start by confirming what HMRC would treat as a connected company for this particular client, rather than relying on the group structure used for general accounts purposes, then get the aggregated intensity calculation done across the full connected group rather than on the claimant entity in isolation.
Where overseas subsidiaries are in the mix, document how their expenditure has been apportioned and why, since this is precisely the area HMRC has said it is reviewing most closely.
Where a client’s intensity sits close to 30 per cent, it is worth modelling the calculation both with and without any planned restructuring, so they understand the effect on their claim before the structure changes rather than after.
None of this changes the underlying strength of a genuine claim.
It does mean the evidence trail behind the intensity calculation now carries as much weight as the technical narrative behind the R&D itself and that is where firms without in-house R&D specialism are most exposed.
randd uk works alongside accountancy firms to handle exactly this layer of the process, from group intensity calculations through to the supporting documentation HMRC expects to see.
If you have clients sitting near the ERIS threshold or working through a group restructure, we are happy to run the numbers alongside you before the claim is submitted.
Our experts support you in helping clients with R&D so get in touch today.
Adam Bointon is a Technical Director specialising in R&D Tax Credits for SMEs in manufacturing and software sectors. With over 15 years’ experience, he works closely with businesses to identify qualifying R&D activities and prepare clear, compliant claims. He combines technical expertise with a strong understanding of economics and finance to support successful outcomes. Adam also contributes to industry webinars and CPD sessions, sharing insights on R&D tax relief and HMRC requirements.
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