Accounting treatment for R&D tax relief

How R&D tax relief is recognised in accounts

For accounting periods beginning on or after 1 April 2024, most companies claim under the merged R&D tax relief scheme. A smaller group of R&D intensive, loss-making SMEs may qualify for ERIS instead. The qualifying cost categories are aligned, but the calculation and accounting outcome differ.  

How each one shows up in your accounts: merged scheme vs ERIS

Merged scheme (R&D expenditure credit)

HMRC describes the merged scheme as a taxable expenditure credit that is treated as trading income and is liable to Corporation Tax. In practice, most businesses present the credit above the line in the profit and loss account, often as other income, with the tax impact reflected in the tax charge.  

ERIS (enhanced R&D intensive support)

ERIS works differently. It is an additional deduction (so it changes your tax computation and trading loss) plus a payable tax credit for eligible loss-making R&D intensive SMEs. Importantly, ERIS payable tax credit is not taxable income.  

Merged scheme accounting treatment

Under the merged scheme you calculate a credit as a percentage of qualifying R&D spend. Because HMRC treats that credit as trading income, you normally recognise it as income in the period the qualifying R&D spend is recognised, then reflect Corporation Tax on that income through your tax charge.  

The cash outcome is a separate question. The credit goes through the CT600L “waterfall” steps to determine whether it reduces current period Corporation Tax, is set against other liabilities, is carried forward, or becomes payable. Those payment mechanics do not change the basic point that the merged scheme credit is taxable income.  

ERIS accounting treatment

ERIS has two moving parts:

Additional deduction

You deduct an extra amount in the tax computation, which increases the trading loss for tax purposes (if you qualify). This affects your current and deferred tax position, depending on whether and when you expect to use those losses.

Payable tax credit

If you have a surrenderable loss, you may claim a payable tax credit. HMRC states this payable credit is not taxable income. So, unlike the merged scheme credit, you do not gross it up as taxable trading income.  

Timing: when do you recognise it?

The right accounting treatment depends on your reporting framework (UK GAAP or IFRS) and your facts, including whether the claim is agreed before accounts are signed.

Practically, most businesses do one of the following:

• Recognise the expected benefit in the period of the R&D spend where it is probable and can be measured reliably
• Use an estimate where the claim is in progress but the amount is reasonably supportable
• Record it in the following period as a prior period adjustment or post balance sheet event, if the claim is prepared and submitted after the accounts are finalised

If you want to avoid restating statutory accounts, this is where a “prior period adjustment vs restatement” approach is relevant, because many claims are finalised after filing.

Working examples

Example: merged scheme credit recognised above the line

A company incurs qualifying R&D costs in the year and expects a merged scheme credit. In accounts, it typically recognises:

• Income for the credit (often other income, above the line)
• Corporation Tax impact on that income as part of the tax charge

Cash might arrive later, or the credit may be used to reduce tax or carried forward, but the accounting recognition is about the underlying credit and its taxability.  

Example: ERIS claim for a loss-making SME

A loss-making, R&D intensive SME qualifies for ERIS. The accounts typically reflect:

• The tax effect of the additional deduction through current and deferred tax
• The payable credit as a receivable when it is supportable, noting HMRC treats it as non-taxable income  

Common pitfalls to avoid

One of the fastest ways to create confusion is mixing the two models. If you are under the merged scheme, treat it like a taxable expenditure credit. If you are under ERIS, separate the additional deduction from the payable credit and remember HMRC states the payable credit is not taxable income.  

Also, keep your narrative, AIF and numbers aligned. Accounting treatment does not fix an evidence gap. It just makes misalignment easier to spot.