The merged R&D tax credit scheme explained
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What is merged R&D tax credit scheme?
From accounting periods beginning on or after 1 April 2024, the UK has moved to a single merged R&D tax relief scheme for most companies, replacing the old SME and RDEC schemes. It’s designed to encourage and reward scientific and technological innovation by providing tax relief to UK organisations that carry out and spend on qualifying R&D.
The change was introduced to simplify the R&D tax landscape, bring more consistency to how claims are calculated and reviewed, and help government tighten compliance and manage the overall cost of the relief.
In practice, the merged scheme works like the previous RDEC-style support: you claim an R&D expenditure credit based on your qualifying R&D spend, with the credit treated as taxable income. The credit is calculated at 20% of qualifying R&D expenditure, and you can usually claim retrospectively for up to two years after the end of the relevant accounting period.
There is also enhanced R&D intensive support (ERIS) for loss-making R&D-intensive SMEs. If you qualify, it can improve the cash outcome compared to the merged scheme.
Who can claim under the merged scheme?
The merged R&D scheme is now the main route for most companies claiming R&D tax relief. If your company pays (or is required to pay) UK Corporation Tax and you’re doing genuine R&D as HMRC defines it, you may be able to claim an R&D expenditure credit on your qualifying costs.
It’s also worth noting that projects don’t need to succeed to qualify, but the work must go beyond routine development or “new to your business” changes and involve real scientific or technological uncertainty.
Eligible loss-making SMEs that are R&D-intensive (broadly where qualifying R&D spend is at least 30% of total relevant expenditure) may instead qualify for ERIS, but the merged scheme is the standard starting point.
You may be able to claim under the merged scheme if:
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What are the benefits of the merged scheme?
The merged R&D scheme gives most companies one main way to claim R&D tax relief, instead of having to work out if you fall under the old SME or RDEC rules.
If you’re doing eligible R&D, you can claim a 20% credit on your qualifying R&D costs. That credit counts as taxable income, so the real benefit you keep depends on your Corporation Tax position, but it can still make a meaningful dent in your tax bill. You can usually claim up to two years after the end of the accounting period.
If you’re a loss-making SME and your business is R&D-intensive, you might qualify for ERIS instead. ERIS can give you a cash credit worth 14.5% of the loss you surrender (and that cash credit isn’t taxable), which can work out better than the merged scheme for some loss-making companies.
What is the merged scheme R&D tax credit rate?
For accounting periods beginning on or after 1 April 2024, the rate of the R&D expenditure credit under the merged RDEC scheme is 20%, although net benefit depends on your tax position.
Most companies will receive the benefit as “above-the-line” credit: it’s first used to reduce your Corporation Tax bill and, where the rules allow, any remaining amount may be paid as a cash credit.
Estimated R&D spend: £100,000
× credit rate @ 20% = £20,000 (credit)
– Corporation Tax on the credit @ 19% = £3,800
= £16,200 (net benefit)
Estimated R&D spend: £100,000
× credit rate @ 20% = £20,000 (credit)
– Corporation Tax on the credit @ 25% = £5,000
= £15,000 (net benefit)
Please note: your effective Corporation Tax rate can vary (for example, due to marginal relief), and the net outcome depends on your wider tax profile.
What activities qualify for R&D tax credits?
To qualify under the merged scheme, your work needs to meet HMRC's definition of R&D for tax purposes. HMRC assess this using the government’s Guidelines on the Meaning of Research and Development for Tax Purposes, now overseen by the Department for Science, Innovation and Technology (DSIT).
Put simply, the R&D needs to be genuine technical problem-solving, where you’re trying to create or improve something in a way that isn’t already known or easily worked out. This can apply to products, processes or services, and also to materials, devices, systems and software. The key test is whether a capable expert in your field could find the solution using existing knowledge. If they would still need to test, experiment or develop a new approach, it’s more likely to qualify.
Your work doesn’t have to succeed. But routine upgrades, standard implementation, cosmetic changes, and purely commercial challenges (like market demand or pricing) don’t qualify on their own.
What R&D expenditure qualifies for the merged scheme?
Once qualifying activities have been identified, there are specific types of expenditure that can be claimed under the merged scheme. These are:
How the merged scheme is different from RDEC
The biggest difference is who it applies to. Old RDEC was mainly for large companies (and some SMEs in specific situations). From 1 April 2024, the merged scheme becomes the default route for most companies, regardless of size.
Mechanically, it still works in a very similar way to RDEC: you claim an above-the-line expenditure credit that’s taxable income. The headline rate under the merged scheme is 20% of qualifying R&D spend (whereas the old RDEC rate was different).
Two other practical differences matter for a lot of businesses: first, there are tighter rules on overseas subcontractors and some overseas worker costs for periods starting from April 2024, with only limited exceptions. Second, loss-making R&D-intensive SMEs may be better off claiming under ERIS instead of the merged scheme, because ERIS has its own calculation and payable credit route.
Grants and subsidised R&D spend under the merged scheme
If your R&D is supported by an innovation grant or other subsidy, it’s still worth paying attention but the rules have changed. Under the old SME scheme, “subsidised expenditure” could reduce the relief available in some situations.
For accounting periods beginning on or after 1 April 2024, those SME-specific subsidised expenditure restrictions aren’t part of the merged scheme in the same way, which removes a common source of confusion.
That said, grants and subsidies can still affect a claim depending on how the funding is structured, who is treated as carrying out the R&D, and which costs you’re including. If you’re grant-funded (especially with multiple parties involved), it’s worth reviewing the position early so you’re claiming under the right route and your narrative and cost treatment stay consistent.
If you’re unsure, we can model the merged scheme vs ERIS outcome alongside the grant position before you commit to the approach.
What to consider when making an R&D tax credit claim under the merged scheme
What do you need to do next?
If you want to claim under the merged scheme, the best move is to sense-check two things early: which route applies (merged scheme vs ERIS) and whether your delivery model still fits the rules, especially where you use subcontractors. A quick upfront review usually saves a lot of rework later, particularly when you’re linking technical activity to costs and building an evidence trail.
Before you submit, there are also two key process steps to watch. Depending on your circumstances, you may need to notify HMRC that you plan to claim within the required window, and you’ll need to submit the Additional Information Form (AIF) for the accounting period before the claim can be processed. Missing either step can delay the claim or mean it isn’t accepted.
What to watch if you’re an SME that isn’t R&D-intensive (or you’re profit-making)
If your R&D spend is below the ERIS intensity threshold (or you’re not eligible for ERIS for other reasons), you’ll typically be claiming under the merged scheme for periods beginning on or after 1 April 2024. The main differences you’ll notice are the RDEC-style credit mechanism (20% credit, taxable) and the need to be clear about contracting and delivery, including the newer restrictions around overseas EPWs and subcontractors.
What to watch if you’re a larger company (or you run R&D through subcontractors)
Even though the merged scheme is based on the RDEC approach, it can still change the detail of how claims behave in practice, particularly where your R&D is delivered through contracted-out arrangements or significant third-party spend.
Two areas that often matter are who is treated as “doing” the R&D under the contracting rules, and the impact of restrictions on overseas subcontractor/EPW spend from April 2024 onwards. If you have a low UK payroll relative to your claim, it’s also worth keeping an eye on the PAYE/NIC cap, as it can limit what’s payable in cash.
Find out if you qualify for R&D funding
Discover which UK government incentives your business could qualify for with our quick and easy self-assessment tool. In just a few minutes, you’ll receive a tailored report outlining the funding opportunities available to support your innovation and growth.
R&D tax credits, grants, Patent Box and R&D allowances are all schemes are designed to help ambitious businesses like yours thrive. Don’t leave potential funding untapped: it could be the key to fuelling your next big idea.
The merged R&D tax scheme – FAQs
For accounting periods beginning on or after 1 April 2024, the old standalone RDEC scheme is replaced by the merged RDEC-style scheme (plus ERIS for eligible loss-making R&D-intensive SMEs).
Because the credit is taxable, many worked examples show a net benefit of around 15% of qualifying spend for companies paying the 25% corporation tax rate (and around 16.2% at 19%). Your position may differ depending on profits and tax profile.
You can generally choose to claim under ERIS or the merged scheme, but you cannot claim both for the same costs.
For periods beginning on or after 1 April 2024, restrictions apply to certain overseas costs (notably subcontracted R&D and EPWs), with limited exemptions. If your R&D relies on overseas delivery, check this early.
Yes. Although the merged scheme and the Patent Box scheme are different (Patent Box allows UK companies with ownership/licensing rights to reduce Corporate Tax on some of the profits by 10%) they can be combined to significantly reduce tax liabilities.
the cap limits how much of the R&D credit can be paid out in cash, based on how much UK payroll tax you’ve actually paid. Under the merged scheme (and ERIS), the cap is broadly £20,000 + 3× your PAYE and NIC liabilities for the period (with some exemptions in certain cases).
For the merged scheme, the credit is taxable and HMRC treats it like trading income in your Corporation Tax calculation.
In your accounts, most companies show it much like old RDEC: as an “above-the-line” credit (often as other income or against R&D costs), then you record the Corporation Tax charge on it, leaving the net benefit after tax.
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