UK R&D tax relief for startups: the merged scheme and ERIS explained

UK startups that build new technology can get money back from the tax system for the cost of the work. R&D tax relief is one of the most valuable forms of support for a UK technology company, and the rules changed in April 2024. This guide sets out how the current scheme works, where the sources agree, and what to check on gov.uk.

• R&D Tax Relief (merged scheme)Up to ~27% of qualifying R&D spendGov. scheme · HMRC · United Kingdom

The two routes

From accounting periods beginning on or after 1 April 2024, the old SME and RDEC schemes are merged into one framework, with a separate enhanced route for the most research-heavy loss-making companies.

• The merged scheme. A credit of 20% of qualifying R&D spend, treated as taxable income above the line. Professional guidance puts the net benefit for a company paying the 25% main rate of Corporation Tax at about 15p per GBP 1 of qualifying spend. A company that makes a loss can receive part of the credit in cash, subject to conditions such as caps linked to its PAYE and National Insurance payments.
• ERIS (Enhanced R&D Intensive Support). For loss-making SMEs whose R&D expenditure is at least 30% of total expenditure for accounting periods beginning on or after 1 April 2024 (it was 40% for expenditure from 1 April 2023). HMRC's manual lists a 14.5% payable credit alongside an 86% additional deduction. Total expenditure is taken from the profit and loss account, and capital expenditure is left out of both sides of the calculation.

A research-intensive SME cannot claim both ERIS and the merged scheme credit on the same spend. Sources differ in how they describe how the routes sit together, so confirm which applies to your accounting period in HMRC's manual and with your adviser.

What counts as R&D

HMRC's guidance defines qualifying R&D as work that seeks an advance in science or technology, resolving scientific or technological uncertainty. Routine development, market research and cosmetic changes do not qualify. Document the uncertainty you faced, what you tried and why the answer was not obvious.

Before you claim

HMRC's overview page links to guidance on two steps that must come first:

1. The additional information form. HMRC requires this to be submitted before you claim. It sets out the projects, the costs and who did the work.
2. Telling HMRC you want to claim. First-time claimants, and companies that have not claimed in the past three years, notify HMRC of their intention within a deadline after the end of the accounting period.

Check the current deadlines and form content on gov.uk, because they have been changed several times since 2023.

Preparing a claim founders can defend

• Keep project records as you go. Dated notes on the technical problem, the tests and the dead ends are the best evidence.
• Track who worked on what. Salaries of staff directly engaged in R&D are the main cost. Time records make the claim easy.
• Separate subcontractors and the 'connected' parties. The rules on payments to subcontractors and externally provided workers are strict.
• Use an adviser who is paid for the work, not a share of the refund, unless you have checked their approach. HMRC has increased its checks on R&D claims.

Combine it with other UK support

R&D relief works alongside SEIS and EIS for fundraising, covered in SEIS and EIS explained, and with grants such as Innovate UK competitions. See startup credits in Europe.

• SEIS / EIS Tax ReliefInvestors get up to 50% income tax reliefGov. scheme · HMRC · United Kingdom
• Innovate UK CompetitionsGrants from £25k to £2M+Grant · UK Research and Innovation · United Kingdom

This guide is general information, not tax advice.

Sources

• HMRC: Corporation Tax, R&D relief
• HMRC: enhanced support for R&D intensive SMEs

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