Merged R&D Scheme vs ERIS: Which Applies to You?

Two routes, one decision

UK R&D tax relief now runs through two routes. Most companies claim under the merged R&D expenditure credit scheme, often still called RDEC. Loss making small and medium sized companies that spend heavily on R&D can instead claim Enhanced R&D Intensive Support, known as ERIS.

Picking the right one matters. For an early stage tech company the difference can be several thousand pounds on a modest claim, and claiming under the wrong regime is a common reason HMRC opens an enquiry.

How the merged R&D scheme works

The merged scheme gives a 20% above the line credit on qualifying R&D spend. The credit is taxable, so its real value depends on your tax position: roughly 15% of qualifying spend for a company paying the main rate of Corporation Tax, and around 16.2% for a loss maker where the notional small profits rate applies.

It is open to profit making and loss making companies of any size. The credit is set against Corporation Tax first, with any balance paid in cash, which makes it useful for startups as well as established businesses.

How ERIS works

ERIS is for loss making SMEs whose qualifying R&D spend is at least 30% of total relevant expenditure. Qualifying companies deduct an extra 86% of their R&D costs, then surrender the resulting loss for a payable credit at 14.5%.

Taken together, that is worth up to about 27p for every pound of qualifying spend, noticeably more than the merged scheme gives a loss maker. For a pre revenue deep tech or software company, that gap is often the reason to check intensity carefully every year.

The 30% intensity test in practice

Intensity is qualifying R&D expenditure divided by total relevant expenditure for the period. Spend on staff, subcontractors, software and consumables counts towards the R&D side; general overheads, marketing and sales costs sit only in the total.

Companies close to the threshold should model both outcomes. A grace period can help a company that met the test in the previous year but dips slightly below it, so the history of past claims matters as well as this year's numbers.

Subcontractors, overseas costs and grants

Both regimes generally restrict relief to work carried out in the UK, so overseas subcontractors and externally provided workers abroad usually no longer qualify. Contracted out R&D is normally claimed by the company that decides to undertake the R&D and bears the technical risk.

Grant funding is handled far more simply than under the old SME scheme. Under the merged scheme, a grant does not force you to split a project into separate claims. Read our guide to claiming R&D tax relief on grant funded projects for the detail.

Which should you claim?

If you are profitable, you will claim under the merged scheme. If you are loss making but R&D is below 30% of spend, the merged scheme still applies and still pays cash. If you are loss making and R&D is 30% or more of total spend, ERIS is usually worth more and should be modelled first.

Run your figures through our R&D tax relief calculator to compare both routes, then see the full R&D tax credits guide for what qualifies.

Where to go next

GrantUp's R&D tax credit specialists check intensity, prepare the technical narrative and hand your accountant a CT600 ready claim, on a success fee typically 10% with no lock in and no minimum claim size. Book a call and we will confirm which regime fits your company.