What “paid” means under the merged scheme
For accounting periods beginning on or after 1 April 2024, most companies claim under the merged R&D tax credit scheme. It works like an above-the-line credit (similar in shape to the old RDEC approach): you calculate a credit on qualifying R&D costs, recognise it as taxable income, and then it flows through a set order of how it’s used or paid. R&D-intensive loss-making SMEs may qualify for ERIS, which changes how much benefit you can receive. See our ERIS guide.
The key point: it isn’t automatically a cash payment. Whether you receive cash, reduce tax, or carry value forward depends on your tax position and the step-by-step payment rules.
Step 1: Work out your expenditure credit
Under the merged scheme, the expenditure credit is calculated as a percentage of your qualifying R&D spend (the “headline rate” is set in HMRC’s merged scheme guidance).
Because the credit is taxable, the net benefit is lower than the headline rate and depends on your Corporation Tax position. HMRC’s process also treats the credit as taxable income in the accounts (or adds it in the tax computation).
Quick illustration: if £100,000 of qualifying spend generates a £20,000 credit, and your Corporation Tax rate is 25%, the “after tax” value starts around £15,000 before any further restrictions or offsets.
Step 2: Use the credit to pay Corporation Tax for the current period
HMRC’s ordering rules start with your current period Corporation Tax. The credit is first applied here. If it fully absorbs the liability, you move on only if there’s still credit left.
Step 3: Check restrictions linked to PAYE/NIC
If credit remains after settling current-period Corporation Tax, the next gate is a comparison with your company’s PAYE and National Insurance contributions spend (or the relevant cap mechanics). Any excess above what’s allowed at this step is carried forward rather than paid out immediately.
This is one of the main reasons two companies with identical R&D spend can see different cash outcomes. (Tax is rarely romantic like that.)
Step 4: Set the credit against older Corporation Tax liabilities
If there’s still credit remaining, it must be used to pay any outstanding Corporation Tax liabilities from earlier accounting periods.
Step 5: Use within a group (if relevant)
If your company is part of a group, some remaining credit can be used against another group member’s Corporation Tax liability (within the rules).
Step 6: Set the credit against other HMRC liabilities
Next, any remaining amount is used to meet other liabilities to HMRC, such as VAT or liabilities under a contract settlement.
Step 7: Cash payment (if anything is left, and conditions are met)
Only after going through the ordering steps can any remaining credit potentially be paid out to the company. This final payable amount is subject to conditions, including HMRC’s going concern requirement.
When you’ll see a repayment vs a “true” payable credit
It’s common to talk about R&D being “paid as a rebate”, but under the merged scheme there are two distinct cash-ish outcomes:
- Repayment of overpaid Corporation Tax: if you amend a return and the credit reduces a tax bill you already paid, HMRC may repay the difference once processed
- Payable credit: if there’s credit left after the required set-offs (and conditions are met), HMRC can pay the remaining amount to the company
Claim deadlines to watch
HMRC sets claim deadlines based on your period of account:
- If the period of account is 18 months or less: the deadline is 24 months from the last day of that period
- If the period of account is more than 18 months: the deadline is 42 months from the first day of that period
.svg)
