R&D Merged Scheme Explained
Find out which scheme your R&D Tax Credit claim is eligible for and the corresponding rate of tax relief available.
What are the current schemes?
Major changes to the R&D tax claim system were implemented by the government in 2024, to simplify and improve the process.
It means that for accounting periods beginning on or after 1 April 2024, the applicable schemes are the Merged Scheme and the Enhanced R&D Intensive Support scheme (ERIS).
What is the merged scheme?
This scheme has resulted from the merging of the RDEC and SME schemes, adopting a single set of qualifying rules for most businesses that carry out R&D.
Key changes include:
• Single credit rate:
A taxable expenditure at the rate of 20%. The net benefit to the company typically results in an effective benefit on qualifying R&D expenditure of around 15% to 16.2%.
• Unified qualifying rules for subcontracted and subsidised R&D. Learn more here: Incentivising risk – Tax relief on contracted R&D
• Restrictions on overseas R&D expenditure
Contact us if you are unsure about how your claim will be impacted by these changes.
Enhanced R&D Intensive Support scheme (ERIS)
This scheme applies to loss-making SMEs for which 30% or more of their total expenditure is on qualifying R&D activities, making them eligible for higher rates of tax relief.
To be categorised as an SME, a company must have fewer than 500 employees, as well as a turnover of under €100million (around £86million) or a balance sheet total under €86million (around £75million).
Under the ERIS scheme, the deduction is an extra 86% of qualifying costs in calculating the trading loss, there is a payable tax credit available of 14.5% of your surrenderable loss.
The combined effect gives an effective benefit on qualifying R&D expenditure of up to 27%.
When does a claim need to be submitted?
You can make an R&D tax claim retrospectively for your previous two financial years ends.
There is a hard 2 year deadline for submission. For example, if the end date of your accounting period is 31 March, you would need to submit your R&D claim for the accounting period of 1 April 2023 – 31 March 2024 by midnight on 31 March 2026.
Get in touch if you are uncertain about any aspect of your company’s claim process.
Which schemes will be replaced by the Merged scheme and ERIS scheme?
SME scheme
The SME scheme applies to companies which fit the same criteria as the SME description explained above, and to both profit- and loss-making businesses.
RDEC scheme
The RDEC scheme applies to large companies – those with more than 500 employees, as well as a turnover of more than €100million (around £86million) or a balance sheet total over €86million (around £75million) – and any SMEs that do not qualify for the SME scheme. If an SME has been subcontracted to conduct R&D work, it has to claim tax relief through the RDEC scheme. For accounting periods beginning on or after 1 April 2024, both schemes are replaced by the Merged Scheme and, where applicable, ERIS.
Find out the value of your claim
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Merged Scheme FAQs
What is an R&D-intensive SME?
Loss-making SMEs with qualifying R&D within their total expenditure receive an enhanced rate. For R&D activities conducted on or after 1 April 2024, the threshold for R&D intensity was lowered from 40% of total expenditure to 30%
Who qualifies for the Merged scheme?
All companies undertaking qualifying UK R&D activities can claim, regardless of size.
However, they must have incurred R&D expenditure to attempt to resolve a scientific or technological problem or uncertainty, whether those endeavours were successful or not.
What are the new rules for overseas R&D?
From 1 April 2024, R&D conducted outside the UK is generally not eligible for relief.
Exceptions apply only where conditions essential to the R&D do not exist in the UK but they do exist overseas and it would be wholly unreasonable to recreate them in the UK (e.g. unique climate, disease, or regulatory testing environment).
How do subcontracting rules work under the current scheme?
Relief usually goes to the company which decides to carry out the R&D and bears the risk – typically the contracting company, not the subcontractor. Subcontracted and subsidised R&D are no longer automatically excluded, but eligibility depends on who initiated and controlled the R&D.
How are loss-making companies treated under the current schemes?
Under the Merged scheme, loss-making companies can surrender their losses for a cash payment at the notional tax rate of 19%. Under ERIS, if the company is R&D-intensive it can surrender for a 14.5% payable credit, giving a higher cash benefit.
Can I claim under both the Merged scheme and ERIS?
No. A company can only claim under one scheme for a given period. If your company meets the R&D-intensive threshold, you can choose ERIS. Otherwise, the Merged scheme applies automatically.
What happens if a company no longer meets the 30% R&D intensity threshold?
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