R&D tax credits 2026/27: the merged scheme, ERIS, and how to claim what your company is owed

UK R&D tax relief in 2026/27, two schemes

R&D tax relief is one of the most generous, and most under- claimed, UK Corporation Tax reliefs. For accounting periods beginning on or after 1 April 2024, the old SME and RDEC schemes have been replaced by:

1. The merged R&D Expenditure Credit (RDEC) scheme , the default for almost everyone, profit-making and most loss-making companies of any size. A 20% taxable expenditure credit on qualifying R&D spend.
2. Enhanced R&D Intensive Support (ERIS), a more generous route for loss-making SMEs where qualifying R&D is at least 30% of total expenditure. 86% additional deduction plus a 14.5% payable credit on surrendered losses.

Which scheme a company falls into is decided by size, profit / loss position, and R&D intensity. Most growing technology businesses will be on the merged RDEC route; early-stage R&D-heavy startups often qualify for ERIS.

What counts as R&D for tax purposes

The test, in HMRC's words, is whether the project seeks an advance in a field of science or technology by resolving scientific or technological uncertainty. The advance has to be against the state of the existing field, not just within the company's own knowledge.

Three filters in practice:

1. Was a scientific or technological uncertainty present? If a competent expert in the field would know how to do the work straight away, there is no uncertainty and no qualifying R&D.
2. Did the project try to resolve the uncertainty? Routine improvements, applying off-the-shelf solutions, or commercial trial-and-error usually does not count.
3. Would the advance benefit the field, not just the company? Internal know-how, market research, training, marketing experiments and aesthetic design do not qualify regardless of cost.

Example sectors with high success rates: software (new algorithms or architectures, not standard CRUD apps), engineering (novel materials, manufacturing methods), life sciences and biotech, advanced electronics. Sectors with lower success rates but possible claims: food and drink (novel processes), construction (new building methods), creative industries (technical R&D, not creative output).

The merged RDEC scheme, mechanics

For most companies in 2026/27, R&D relief comes through the merged RDEC scheme. The mechanics:

1. Identify qualifying R&D expenditure for the accounting period
2. Apply a 20% expenditure credit to that amount
3. The credit is shown 'above the line' as taxable income
4. Corporation tax is then applied to the increased taxable profit
5. If the company is loss-making after the credit, a step-by-step process determines how much of the credit becomes a payable cash credit

Worked example: profit-making company, £200,000 of R&D

• Qualifying R&D: £200,000
• 20% expenditure credit: £40,000
• Added to taxable profit and then taxed at the company's CT rate
• Assuming 25% main rate, the corporation tax on the credit is £10,000
• Net cash benefit: £40,000 − £10,000 = £30,000
• That is 15% of the R&D spend, in cash, in addition to the normal CT deduction the company gets on the underlying spend

For loss-making companies, the credit can be claimed as a cash payment instead of being used to reduce future CT. The payable cash credit is broadly the credit amount net of a notional CT at the small profits rate (19%), so around 16.2% of qualifying R&D spend, capped by an SME payable credit cap.

ERIS, the better route for R&D-intensive loss-making SMEs

ERIS gives a much more generous outcome but only applies if all three conditions are met:

1. The company is an SME (under 500 employees, turnover under €100m or balance sheet under €86m)
2. The company is loss-making
3. Qualifying R&D expenditure is at least 30% of total expenditure for the period

The 30% intensity threshold was lowered from 40% from 1 April 2024 onwards, opening up ERIS to more companies than the original April 2023 enhanced rules.

Worked example: ERIS-qualifying SME with £200,000 of R&D and £150,000 trading loss

• Qualifying R&D: £200,000
• Additional 86% deduction: £172,000 extra deduction (on top of the £200,000 already in the accounts)
• Total tax-deductible amount: £372,000
• Loss available for surrender: increased substantially because of the additional deduction
• Payable credit at 14.5% on surrendered losses
• Typical cash outcome: around £54,000 to £56,000 on £200,000 of R&D spend, or roughly 27p of cash per £1 of R&D

The ERIS cash outcome is materially better than the merged RDEC route for loss-making SMEs. The cliff at the 30% intensity test means borderline companies need careful year-by-year tracking, our R&D claims often turn on whether one cost line falls inside or outside qualifying expenditure and affects the intensity ratio.

What expenditure qualifies

• Staff costs. Salary, employer NI, pension contributions, and reimbursed expenses, for the proportion of an employee's time spent directly on qualifying R&D. Apportionment must be defensible.
• Externally provided workers (EPWs). Contractors supplied by another company who work under your direction on the R&D project. 65% of the cost qualifies (or 100% if the EPW provider is a connected company).
• Software and cloud computing. Including data costs for the project (added from April 2023).
• Consumable items. Materials transformed or consumed in the R&D process, including utility costs apportioned to the R&D work.
• Payments for clinical trials. Including volunteer subjects.
• Contracted-out R&D. Subject to territoriality restrictions from 1 April 2024: generally the R&D must be performed in the UK, with limited exceptions where overseas work is necessary (specific geography, environmental conditions, regulatory reasons).

What does not qualify: capital expenditure on equipment (claim via Annual Investment Allowance instead), rent and rates, marketing, sales, training, distribution.

The Additional Information Form, do not skip this

Since 1 August 2023, every R&D claim must be supported by an Additional Information Form (AIF) filed online with HMRC before the CT600 carrying the claim. Without the AIF, the claim is invalid, even if the CT600 calculation is correct.

The AIF must include:

• Details of the R&D projects (up to 10 projects covered)
• The advance sought and the uncertainty resolved, in plain language
• Why the work qualifies as R&D under the BEIS / Frascati definition
• The qualifying expenditure breakdown
• The named officer responsible for the claim within the company
• Details of any R&D adviser involved

We file the AIF for every R&D claim we run for clients. The process catches a meaningful number of weak claims before they reach HMRC's enquiry team.

Time limit and deadlines

R&D claims must be made within 2 years of the end of the accounting period to which they relate. So for a year ended 31 December 2024, the claim deadline is 31 December 2026.

A few timing points:

• The 2-year window cannot be extended in normal circumstances
• If you have not filed a CT600 for the relevant period yet, file the CT600 with the R&D claim included; you do not need to file CT600 first and then amend
• If the CT600 has been filed without the claim, you can amend within the 2-year window
• HMRC normally process valid claims within 40 working days from receipt

Common reasons R&D claims fail or get reduced

• Weak technical narrative. Saying 'we developed new software' is not a qualifying narrative. HMRC wants the technological uncertainty stated and the attempted resolution described.
• Routine commercial development misclassified as R&D. Building a website, integrating an off-the-shelf API, or upgrading internal systems rarely qualifies even if it felt difficult.
• Cost apportionment without timesheets. HMRC increasingly challenges staff cost claims that lack contemporaneous time recording.
• Capital items wrongly included. Equipment and software licences past the consumable threshold should be claimed under capital allowances, not R&D.
• Overseas subcontractor work post-April 2024. New territoriality rules disallow most overseas R&D contracted out by UK companies, with narrow exceptions that need specific justification.

How HMRC enforcement has changed

R&D claims face the most active HMRC enquiry programme of any UK tax relief. A few realities owners should understand before claiming:

• Claims under £30,000 to £50,000 still attract enquiry attention; the days of small claims passing on the nod are over
• HMRC has a dedicated R&D team and a published track record of opening enquiries on claims with weak technical narratives
• R&D advisers who file aggressive claims face HMRC scrutiny themselves; the agent levy and standards regime now affects who can prepare claims
• Successful enquiry defence relies on contemporaneous evidence (lab notes, timesheets, project documentation) more than retrospective explanation

The combination of high reward and high enforcement makes R&D one of the areas where professional advice repays its cost most clearly.