ERIS vs merged R&D scheme: how to choose the right route

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Summary

From April 2024, R&D tax relief moved to two routes: the merged scheme and ERIS. The merged scheme applies to most companies, while ERIS is aimed at loss-making

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Which R&D route applies: the merged scheme or ERIS?

From April 2024, R&D tax relief moved to a new structure.

The merged scheme is the default route for most companies. It applies to large companies and most SMEs, provides a 20% above-the-line credit, and typically delivers a net benefit of around 15% to 16.2%. The credit is taxable.

ERIS is designed for loss-making SMEs with high levels of R&D investment. If eligible, ERIS provides an additional 86% deduction on qualifying R&D costs or a 14.5% payable credit, with a typical net benefit of around 27%.

In most cases, your profit position and level of R&D investment determine which route applies.

The challenge is that the rules are interconnected. Your profit position, cost base, and how your expenditure is structured all influence the result. This guide walks through the new structure step by step, so you can see where you are likely to sit and what to consider next.

How to approach the decision

The simplest way to think about this is as a sequence of checks, where you are working towards one key question:

Do you meet the criteria for ERIS?

If not, the merged scheme will apply by default.

Step 1: Are you an SME?

ERIS is only available to SMEs.

If you are a large company, or part of a group that exceeds SME thresholds, you will claim via the merged scheme.

If you are an SME, move to the next step.

Step 2: Are you profit-making or loss-making?

ERIS is designed for loss-making SMEs.

If you are profit-making, you will use the merged scheme
If you are loss-making, you may be eligible for ERIS

Your position here should be based on your tax calculation, not just your accounts.

Step 3: Does your R&D intensity meet the threshold?

To qualify for ERIS, your R&D spend must be:

At least 30% of your total company costs

This is where many decisions become less clear.

You need to look at:

Total company expenditure
Qualifying R&D costs
How costs are categorised and timed

If your R&D intensity is:

Below 30% → merged scheme applies
At or above 30% → ERIS may apply

Step 4: Check the practical constraints

Even if you meet the core criteria, there are additional factors that can affect the outcome.

PAYE cap

Both schemes are subject to a cap:

£20,000 + 300% of PAYE/NIC liability

If your payroll is low, this can limit the payable credit under ERIS.

Subcontracting

Restrictions apply to overseas R&D subcontracting.

If part of your development is carried out overseas, some costs may not qualify, which can affect your R&D intensity and final benefit.

Timing and consistency

Small changes in:

Cost allocation
Timing of spend
Treatment of losses

can move you above or below the ERIS threshold.

This is why the decision is not always static year to year.

What each route looks like in practice

Once you work through the steps, the outcome is usually clear.

Merged scheme

Applies to most companies
20% above-the-line credit (taxable)
Typical net benefit of around 15% to 16.2%

ERIS

Applies to loss-making SMEs with ≥30% R&D intensity
86% additional tax deduction or 14.5% payable credit
Typical net benefit of around 27%

What this means for your business

For most businesses, the merged scheme will apply.

If you are investing heavily in R&D and currently loss-making, ERIS may provide a higher level of support. However, eligibility depends on how your costs and tax position are structured, not just how much you spend on R&D.

This makes forward planning more important.

You may want to consider:

How your cost base is evolving
Whether you are close to the 30% threshold
How future investment decisions affect your position

As with all R&D tax relief, the outcome depends on your specific projects, costs, and how they are evidenced.

How we support you

We help you work through this decision clearly and confidently.

That includes:

Assessing your R&D intensity based on real cost data
Confirming your tax position and available options
Explaining which route applies and why
Building a claim that is consistent, well-documented and prepared to stand up to scrutiny

If you are close to the threshold or unsure how the rules apply, we can help you get clarity on what is realistic and what to do next.

FAQs

What changed in R&D tax relief from April 2024?

From 1 April 2024, the UK moved to a new structure for R&D tax relief.

Instead of separate SME and RDEC schemes, there are now two routes:

The merged scheme (the default)
Enhanced R&D Intensive Support (ERIS)

The aim is to simplify the system while targeting support more deliberately. In practice, most businesses will fall into the merged scheme, with ERIS applying to a smaller group of R&D-intensive SMEs.

What is the merged R&D scheme?

The merged scheme is now the standard route for most companies claiming R&D tax relief.

It applies to:

Large companies
SMEs that are profitable
SMEs that do not meet the ERIS criteria

You receive a 20% above-the-line credit, which is taxable. The typical net benefit is around 15% to 16.2%, depending on your tax position.

What is ERIS?

Enhanced R&D Intensive Support (ERIS) is designed for loss-making SMEs that are heavily investing in R&D.

To qualify, you need to:

Be loss-making
Spend at least 30% of your total company costs on R&D

If eligible, you can claim:

An additional 86% deduction on qualifying costs
Or a 14.5% payable credit

This usually results in a higher net benefit of around 27%.

How do I know which scheme applies to me?

In most cases, this is determined by your circumstances rather than a choice.

You will typically:

Use the merged scheme if you are profit-making or below the 30% R&D intensity threshold
Qualify for ERIS if you are loss-making and meet the 30% threshold

Your tax position and cost structure are key factors in this assessment.

What is R&D intensity and how is it calculated?

R&D intensity measures how much of your total company spend is on R&D.

To qualify for ERIS, your qualifying R&D costs must be at least 30% of your total expenditure.

This calculation is not always straightforward. It depends on how costs are classified and when they are recognised, which means small changes can affect the outcome.

Does my accounting profit matter, or my tax position?

Your tax position is what matters for R&D tax relief.

You may appear profitable in your accounts but still be loss-making for tax purposes, or vice versa.

This distinction can affect whether ERIS applies and how much benefit you can claim.

What is the PAYE cap and how does it affect my claim?

Both schemes are subject to a cap based on your PAYE and NIC liabilities.

The cap is:

£20,000 + 300% of your PAYE and NIC

If your payroll is relatively low compared to your R&D spend, this can limit the amount of payable credit you receive, particularly under ERIS.

Do subcontracted R&D costs still qualify?

Some subcontracted costs can qualify, but there are restrictions.

In particular, overseas subcontracted R&D is subject to tighter rules. If part of your development takes place outside the UK, some costs may not be eligible.

This can affect both your claim value and your R&D intensity calculation.

Is ERIS always better than the merged scheme?

Not necessarily.

ERIS can provide a higher benefit, but only if you meet the eligibility criteria. The merged scheme is the default and applies to most businesses.

The key is not choosing the highest rate, but ensuring the correct scheme is applied based on your position.

Can my position change year to year?

Yes.

Your eligibility can change depending on:

Your profitability
Your level of R&D investment
Changes in your cost base

A business may qualify for ERIS one year and fall into the merged scheme the next, or vice versa.

What should I be doing now?

You should have a clear view of:

Your R&D spend as a percentage of total costs
Whether you are profit-making or loss-making for tax purposes
Any factors that could affect your eligibility, such as subcontracting or payroll levels