R&D tax relief
What your R&D claim is actually worth
The headline rate is 20%, but that isn't what arrives. The merged scheme credit is taxed, part of it can be held back against future tax, and a PAYE cap can push some of it into next year. Put in your figures and this runs them through HMRC's own steps, and shows the ERIS figure alongside if you might qualify for it.
The rates
Two schemes, and the rate you hear isn't the rate you get
For accounting periods beginning on or after 1 April 2024 there are two routes, and you can't use both for the same costs (GOV.UK guidance on the merged scheme and ERIS).
- The merged scheme. An expenditure credit of 20% of qualifying expenditure for most trades (CIRD115000). It counts as taxable trading income, and HMRC then runs it through seven payment steps: it pays off the period's Corporation Tax first, a notional tax deduction is held back from what's left, the PAYE cap is applied, and only then is anything paid out (CIRD112100).
- Enhanced R&D intensive support (ERIS). For loss-making SMEs whose relevant R&D expenditure is at least 30% of total expenditure, connected companies included. It adds an extra 86% deduction to the trading loss, 186% in total, and pays a tax credit that isn't taxable, of 14.5% of the surrenderable loss (CIRD122000, CIRD127000).
What decides the notional deduction is the company's tax position before the credit. A company with profits chargeable at the 25% main rate, Marginal Relief band included, has the deduction worked at 25%. Every other company, loss-makers included, has it at the 19% small profits rate (HMRC manual CIRD112100; rates from GOV.UK: Corporation Tax rates and allowances). So a profitable main-rate company keeps 15% of qualifying spend, and a loss-maker gets up to 16.2% in cash with the other 3.8% carried forward against future Corporation Tax. A company in the Marginal Relief band keeps a little less, 14.7%, because the credit is itself taxable profit and each extra pound in that band is taxed at an effective 26.5% (the 25% main rate plus the 3/200 Marginal Relief fraction being withdrawn).
By tax position
What £100,000 of qualifying expenditure is worth
| Company | Scheme | Corporation Tax saved | Paid in cash | Held back for later | Worth this period |
|---|---|---|---|---|---|
| Profit of £1,000,000 (main rate) | Merged | £15,000 | £0 | £0 | £15,000 (15%) |
| Profit of £150,000 (Marginal Relief band) | Merged | £14,700 | £0 | £0 | £14,700 (14.7%) |
| Profit of £30,000 (small profits rate) | Merged | £5,700 | £10,500 | £0 | £16,200 (16.2%) |
| Trading loss of £200,000 | Merged | £0 | £16,200 | £3,800 | £16,200 (16.2%) |
| Trading loss of £200,000, R&D-intensive SME | ERIS | £0 | £26,970 | £0 | £26,970 (26.97%) |
Worked by the tool below for a standalone company with a 12-month period, exempt from the PAYE cap, no amounts brought forward and no other HMRC debts. The merged loss-maker keeps a trading loss of £180,000 to carry forward, because the credit is income that uses up loss; the ERIS claimant surrenders loss for its credit and carries forward £100,000. "Held back for later" is the step 2 notional tax deduction, which is set against the company's Corporation Tax in later periods, not lost.
Your own figures
Estimate your claim
Free to use, nothing is saved or sent anywhere. Runs entirely in your browser. For accounting periods beginning on or after 1 April 2024 only: for an earlier period, the old SME and RDEC rules apply and this won't give you the right answer.
Qualifying expenditure
£100,000
| Scheme | Corporation Tax saved | Paid in cash | Held back or carried forward | Worth this period |
|---|---|---|---|---|
| Merged scheme | £0 | £16,200 | £3,800 | £16,200 |
| ERIS | £0 | £26,970 | £0 | £26,970 |
Rates read on GOV.UK on 23 September 2026: merged scheme credit 20% (CIRD115000) and its payment steps (CIRD112100); ERIS 86% extra deduction and 14.5% credit (CIRD122000); PAYE cap (CIRD140000); Corporation Tax 19%, 25% and Marginal Relief at 3/200 for financial years 2024 to 2026 (GOV.UK). Assumes a 12-month period, no amounts brought forward, no group surrender, no other HMRC debts, and that a trading loss is set against other profits of the same period. Doesn't cover ring-fence trades, Northern Ireland ERIS rules, or whether the work qualifies as R&D at all. An estimate, not tax advice.
Worked example
A small-profits company with a subcontractor, step by step
Example figures, not market data: £120,000 of in-house R&D costs, £40,000 paid to an unconnected subcontractor, a trading profit of £20,000 before the claim, and £30,000 of PAYE and NIC in the year.
| Step | Working | Amount |
|---|---|---|
| Qualifying expenditure | £120,000 + 65% of £40,000 | £146,000 |
| Gross credit | 20% of £146,000 | £29,200 |
| Corporation Tax without a claim | 19% of £20,000 | £3,800 |
| Step 1: pays off this period's tax | Tax on £20,000 + £29,200 of credit income | £9,348 |
| Step 2: notional tax deduction | Only arises if what's left (£19,852) is more than the credit net of 19% (£23,652) | £0 |
| Step 3: PAYE cap | £20,000 + 300% of £30,000 = £110,000 | Not reached |
| Step 7: paid to the company | Assuming no other HMRC debts or group surrender | £19,852 |
| Worth this period | £3,800 of tax saved + £19,852 paid | £23,652 |
That's 16.2% of qualifying expenditure: 20% less notional tax at 19%. The same claim for a company paying the 25% main rate would be worth 15%, because the credit itself is taxed at 25%.
HMRC's own ERIS examples, run through the same sums
HMRC's manual gives two worked ERIS examples, each with £100,000 of qualifying expenditure and a £50,000 trading loss before the extra deduction (CIRD122000). The page checks at every build that the tool still gets HMRC's answers.
| Company | Loss after the 86% deduction | Surrenderable loss | ERIS credit at 14.5% |
|---|---|---|---|
| A: no other income | £136,000 | £136,000 | £19,720 |
| B: £100,000 of property profits as well | £136,000 | £36,000 | £5,220 |
Company B's surrenderable loss is only the part its property profits can't absorb, whether or not it actually sets the loss against them. It still gains: the bigger loss wipes out the £9,500 of Corporation Tax it would otherwise pay on its profits for the period. For Company A the other limit, 186% of qualifying spend or £186,000, is more than the £136,000 loss, so the loss is what can be surrendered.
The PAYE cap
When a small payroll limits what's paid out
| PAYE and NIC for the year | Cap on credit paid | Merged loss-maker: qualifying spend where the cap starts to bite | ERIS, loss large enough: qualifying spend where the cap starts to bite |
|---|---|---|---|
| £0 | £20,000 | £123,457 | £74,156 |
| £10,000 | £50,000 | £308,642 | £185,391 |
| £30,000 | £110,000 | £679,012 | £407,861 |
| £60,000 | £200,000 | £1,234,568 | £741,565 |
| £120,000 | £380,000 | £2,345,679 | £1,408,973 |
Arithmetic from HMRC's cap of £20,000 plus 300% of PAYE and NIC (CIRD140000). A merged scheme loss-maker receives 16.2% of qualifying spend in cash; ERIS pays at most 26.97% (14.5% of 186%). Over the cap, merged scheme credit carries forward to the next period. An ERIS claim can't go over it, so the rest of the loss simply stays as a loss. Companies whose own staff create or manage their IP can be exempt.
What the tool can't see
A figure for the claim isn't a claim
The biggest variable is the one the tool takes on trust: whether the costs are qualifying R&D at all. That depends on the work resolving genuine scientific or technological uncertainty, and on evidence that it did. See evidence and records. A first claim, or one more than three years after the last, also needs a claim notification no later than six months after the end of the period of account, or the claim is invalid; the deadline checker works that out. Every new claim needs an Additional Information Form, submitted before or on the same day as the Company Tax Return. An ERIS claim also can't take the company over the de minimis State aid limit for the three years ending with the day of the claim; the form asks you to declare that it doesn't (GOV.UK).
It also leaves out the parts of the payment steps that turn on your wider position: credit brought forward from an earlier period, surrender to a group company, and set-off against VAT or PAYE you owe, all of which change when and where the money shows up rather than how much it is. HMRC holds back payment while there's an open enquiry or the company is behind on PAYE or VAT (CIRD112100). If an adviser takes a percentage of the claim, their fee comes out of the figure above: our fee comparison shows what firms publish.
Sources
- GOV.UK: the merged R&D expenditure credit scheme and enhanced R&D intensive support (updated 8 January 2026)
- GOV.UK: Work out your Research and Development tax relief
- HMRC manual CIRD112100: new RDEC payment steps (updated 19 March 2026) and CIRD115000: rates
- HMRC manual CIRD122000: ERIS calculation, CIRD127000: rates and CIRD123000: intensity condition
- HMRC manual CIRD140000: PAYE cap
- HMRC manual CIRD138000: contractor payments and CIRD137000: externally provided workers
- GOV.UK: Corporation Tax rates and allowances
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Adam Parker
Founder of Muswell Rose Consulting Ltd, which trades as Established Finance · former Managing Director of Penny, an invoice finance business, working in mortgages, commercial finance and fintech lending since 2010 (career history).
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Practical questions
Before you get in touch
What is the merged scheme R&D credit worth after tax?
The credit is 20% of qualifying expenditure, but it is taxable trading income. For a company paying the 25% main rate that leaves 15% of qualifying spend. For a loss-maker or small profits company, the notional tax deduction at step 2 is at 19%, so up to 16.2% arrives in cash, and the 3.8% held back is set against future Corporation Tax rather than lost.
How much can ERIS pay a loss-making company?
ERIS adds an extra 86% deduction to the trading loss (186% in total), then pays a tax credit of 14.5% of the surrenderable loss. The surrenderable loss is the lower of 186% of qualifying expenditure and the unrelieved loss, so the most ERIS can pay is 14.5% of 186%, about 26.97% of qualifying spend, and only when the loss is big enough and the PAYE cap doesn't get in the way.
What is the PAYE cap on R&D credits?
For both the merged scheme and ERIS it is £20,000 plus 300% of the company's relevant PAYE and National Insurance liabilities for the period, unless the company meets HMRC's exemption for companies creating or managing their own intellectual property. Under the merged scheme anything over the cap carries forward to the next period. Under ERIS a claim for more than the cap is invalid.
Why does only 65% of my subcontractor cost count?
Payments to a subcontractor, or for externally provided workers, count at 65% when the parties are not connected and haven't elected to be treated as connected. Connected contractors can count the lower of the payment and what the contractor itself spent on qualifying costs. This estimator applies 65% to anything entered as unconnected.
What information do I need?
To start, just a description of what’s actually happening in the business. If it progresses, the provider will ask for the usual things: recent accounts, a sense of turnover and trading history, and details of the specific need.