Which R&D Scheme Applies to You?
The R&D scheme that applies depends on your company size, accounting period start date, funding position, and profitability. UK limited companies carrying out qualifying R&D activities must apply the correct regime to secure the right level of relief and avoid compliance risk.
Choosing the wrong scheme affects claim value and increases enquiry likelihood. Correct scheme selection supports accurate Corporation Tax reporting and reduces the risk of amendment or clawback.
What Are The Main UK R&D Tax Relief Schemes?
UK companies access R&D tax relief through three regimes, depending on accounting period and eligibility. These are SME R&D Tax Relief, the Research and Development Expenditure Credit (RDEC), and the merged R&D scheme for accounting periods beginning on or after 1 April 2024.
Accounting period start date determines which rules apply. Company size, group structure, and funding also affect whether the SME scheme or RDEC applies, or whether the merged scheme replaces both.
SME R&D Tax Relief
The SME scheme applies to qualifying small and medium-sized companies for accounting periods starting before 1 April 2024, unless exclusions apply. The scheme enhances qualifying R&D expenditure and allows payable credits for loss-making companies.
Relief is calculated through enhanced deductions and, in some cases, a repayable tax credit.
Who Qualifies As An SME?
An SME is a company with fewer than 500 staff and either turnover not exceeding €100 million or a balance sheet total not exceeding €86 million. Group companies and linked enterprises must be included when applying these thresholds.
Financial Thresholds And Group Rules
Group aggregation rules apply to staff numbers, turnover, and balance sheet totals. Linked and partner enterprises affect eligibility. Incorrect group analysis often leads to invalid SME claims.
How The SME Scheme Calculates Relief
The SME scheme enhances qualifying R&D expenditure by an additional percentage uplift. For profitable companies, the uplift reduces taxable profits. For loss-making companies, part of the enhanced loss may be surrendered for a payable credit.
When The SME Scheme Does Not Apply
The SME scheme does not apply where:
- The company exceeds SME thresholds after group aggregation
- The project receives notified State Aid
- The accounting period begins on or after 1 April 2024
In these cases, RDEC or the merged scheme applies instead.
Research And Development Expenditure Credit (RDEC)
RDEC primarily applies to large companies and certain SMEs that cannot claim under the SME scheme. The regime operates as an above-the-line taxable credit.
The credit increases taxable income but creates a corporation tax benefit and, in some cases, a payable credit.
Who Falls Under RDEC?
Large companies exceeding SME thresholds fall under RDEC. SMEs also use RDEC where projects receive notified State Aid or where the SME scheme is otherwise unavailable.
How RDEC Calculates The Credit
RDEC provides a taxable credit calculated as a percentage of qualifying R&D expenditure. The credit is subject to corporation tax, resulting in a net benefit lower than the headline rate.
Interaction With Large Companies And Subsidised Projects
Large companies always use RDEC for relevant periods. SMEs receiving notified State Aid must claim RDEC for the subsidised project costs, even if the company otherwise qualifies as an SME.
Accounting Treatment And Tax Position
RDEC credits appear above the tax line in company accounts. The credit increases accounting profit and then forms part of the corporation tax calculation. A payable amount arises only after offsetting against tax liabilities and certain other amounts.
Merged R&D Scheme (For Accounting Periods Starting 1 April 2024 Onwards)
The merged scheme replaces SME R&D Relief and RDEC for accounting periods beginning on or after 1 April 2024, except where Enhanced R&D Intensive Support applies.
The merged regime applies a single expenditure credit model broadly aligned with RDEC but open to companies of all sizes.
Who Must Use The Merged Scheme?
All companies with accounting periods starting on or after 1 April 2024 use the merged scheme unless they qualify for Enhanced R&D Intensive Support as loss-making R&D-intensive SMEs.
How Relief Is Calculated Under The Merged Rules
The merged scheme provides a taxable expenditure credit calculated as a percentage of qualifying R&D costs. The credit increases taxable profits and then reduces the corporation tax liability through a set-off mechanism similar to RDEC.
Key Differences From The Previous SME And RDEC Schemes
The merged scheme removes the enhanced deduction model used under SME relief. A single credit-based calculation now applies across company sizes, improving consistency but changing benefit profiles for some SMEs.
Enhanced R&D Intensive Support (ERIS) For Loss-Making SMEs
Enhanced R&D Intensive Support applies to certain loss-making SMEs from 1 April 2024 onwards. ERIS preserves a higher payable credit for companies with significant R&D spend.
Eligibility depends on R&D intensity and loss-making status.
What Counts As R&D Intensive?
A company qualifies as R&D intensive where qualifying R&D expenditure meets the required percentage of total expenditure for the relevant accounting period under current legislation.
Eligibility Conditions For ERIS
ERIS applies where the company:
- Meets SME size thresholds
- Is loss-making for tax purposes
- Satisfies the R&D intensity requirement
Failure to meet any condition moves the claim to the merged scheme.
How ERIS Differs From Standard SME Relief
ERIS provides a higher payable credit rate than the merged scheme. The calculation differs from the former SME enhanced deduction model and operates within the post-2024 framework.
Scheme Comparison Overview
The table below summarises which scheme applies based on company type, accounting period, and financial position.
| Scheme | Eligible Company Type | Accounting Period | Relief Rate | Payable Credit Available | Key Restrictions |
|---|---|---|---|---|---|
| SME R&D Relief | SMEs meeting size tests | Before 1 April 2024 | Enhanced deduction model | Yes (if loss-making) | Excluded if notified State Aid applies |
| RDEC | Large companies and some SMEs | Before 1 April 2024 | Taxable expenditure credit | Limited, subject to steps | Used for subsidised SME projects |
| Merged Scheme | All companies | From 1 April 2024 | Taxable expenditure credit | Limited, step-based | Replaces SME and RDEC |
| ERIS | Loss-making R&D-intensive SMEs | From 1 April 2024 | Enhanced payable credit | Yes | Must meet intensity threshold |
Accounting period start date remains the first decision point when identifying the correct scheme.
Key Eligibility Checks Before Choosing A Scheme
Scheme selection depends on objective criteria. Companies must assess timing, size, funding, and profit position before preparing a claim.
Errors often arise where one factor is overlooked.
Accounting Period Start Date
The accounting period start date determines whether pre-1 April 2024 rules or the merged regime applies. Straddling periods require apportionment under different rules.
Company Size And Group Structure
Staff headcount, turnover, and balance sheet totals must include relevant group companies. Linked enterprises change SME status and therefore scheme access.
Subsidised Or Grant-Funded Projects
Notified State Aid funding moves affected SME projects into RDEC for pre-2024 periods. Under the merged regime, funding still affects calculation and compliance analysis.
Profit-Making Vs Loss-Making Position
Profitability determines whether a payable credit is available. Loss-making SMEs may access ERIS or surrender losses under earlier SME rules.
Common Scenarios And Which Scheme Applies
Real-world situations often combine size, funding, and profitability factors. The scheme outcome depends on how those factors interact in the relevant period.
Standalone SME With No Grant Funding
A qualifying standalone SME with accounting periods before 1 April 2024 typically claims under the SME scheme. For periods starting on or after that date, the merged scheme applies unless ERIS conditions are met.
SME Receiving Notified State Aid
An SME receiving notified State Aid for a specific project must claim RDEC for those project costs in pre-2024 periods. Other non-subsidised projects may still qualify under SME rules for the same period.
Large Company Carrying Out R&D
A large company claims under RDEC for periods before 1 April 2024. From that date, the merged scheme applies automatically.
Loss-Making R&D-Intensive SME
A loss-making SME meeting the R&D intensity threshold for periods from 1 April 2024 claims under ERIS. If the threshold is not met, the merged scheme applies instead.
Deadlines And Administrative Requirements
Compliance requirements apply across all schemes. Late or incomplete submissions invalidate claims or delay processing.
Companies must coordinate R&D claims with Corporation Tax reporting obligations.
Claim Notification Requirements
Companies new to R&D claims or not claiming in recent periods must submit a claim notification to HMRC within the statutory deadline, typically within six months of the period end.
Additional Information Form
HMRC requires an Additional Information Form before or at the time of submitting the Corporation Tax return. The form includes project descriptions and cost breakdowns.
Corporation Tax Filing Deadlines
R&D claims form part of the Company Tax Return. The statutory filing deadline is 12 months after the end of the accounting period.
FAQs
How Do I Know If My Company Qualifies As An SME For R&D?
SME status depends on staff headcount and financial thresholds, including group aggregation. A full group structure review establishes eligibility.
Can A Company Switch Between SME And RDEC?
Scheme changes occur automatically where eligibility changes between accounting periods. A company cannot freely choose between schemes if statutory criteria dictate otherwise.
What Happens If I Choose The Wrong Scheme?
HMRC may amend the return, reduce the claim, or open an enquiry. Incorrect claims increase delay and compliance risk.
Does Grant Funding Automatically Move A Claim To RDEC?
Not all grants trigger RDEC. Notified State Aid funding affects scheme access under pre-2024 SME rules. Each funding source requires classification.
Which Scheme Offers The Highest Benefit?
Benefit levels depend on profitability, expenditure volume, and period. Loss-making R&D-intensive SMEs may access higher payable rates under ERIS, while other companies follow merged scheme credit rates.
Conclusion
The applicable R&D scheme depends on accounting period start date, company size, funding structure, and tax position. Pre-1 April 2024 periods use SME or RDEC rules, while later periods generally fall under the merged regime or ERIS.
Accurate eligibility assessment before submitting a claim protects claim value and reduces enquiry risk. Careful review of timing, group structure, and funding ensures the correct scheme applies.