Guide
How much R&D tax credit will I get?
A UK R&D claim is worth about 15% to 27% of qualifying costs, depending on the scheme and your profits. See worked examples per £100,000 of spend.
An R&D claim is usually worth between about 15p and 27p for every £1 of qualifying costs. Under the merged scheme, which covers most claims, the credit is 20% of qualifying costs, but it is taxable, so a profitable main-rate company keeps about 15% and a loss-maker about 16.2%. A loss-making SME with R&D intensity of at least 30% can claim under ERIS instead, which can pay up to about 27% in cash. The final figure also depends on your payroll, because of the PAYE cap.
The two schemes in one minute
For accounting periods beginning on or after 1 April 2024, there are two routes. The merged scheme gives a 20% expenditure credit to companies of any size. ERIS (enhanced R&D intensive support) is for loss-making SMEs that spend at least 30% of their total relevant expenditure on R&D.
Both start from the same base: your qualifying R&D costs. Staff costs, consumables, software, some cloud and data costs, and 65% of payments to unconnected subcontractors and externally provided workers can all feed into that base. Capital items do not, though they may qualify for R&D capital allowances.
Example 1: a profitable company paying the main rate
Take £100,000 of qualifying costs.
- Credit at 20%: £20,000
- Notional tax at 25%: £5,000
- Net benefit: £15,000
The credit is first set against the company's Corporation Tax for the period, so for a profitable company it usually shows up as a lower tax bill rather than a payment. Companies in the marginal relief band still take notional tax at 25%.
Example 2: a loss-making company under the merged scheme
Again, £100,000 of qualifying costs.
- Credit at 20%: £20,000
- Notional tax at 19% (the small profits rate): £3,800
- Net benefit: £16,200
If the company has little Corporation Tax to absorb the credit, the balance is paid to it in cash, subject to the PAYE cap and to any other amounts it owes HMRC. With £10,000 of relevant PAYE and NIC liabilities the cap is £20,000 plus £30,000, or £50,000, so nothing is blocked here.
Example 3: a loss-making SME under ERIS
Now suppose the same company meets the 30% intensity test and has a large enough trading loss.
- Qualifying costs of £100,000 attract an extra 86% deduction, so £186,000 in total.
- The company surrenders up to £186,000 of loss.
- The payable credit is 14.5% of the surrendered loss: £26,970.
The credit is not taxable. But there are two catches. First, the company can only surrender the lower of its trading loss and the enhanced expenditure, so a smaller loss produces a smaller credit. If the trading loss were £120,000, the credit would be £17,400. Second, the surrendered loss is used up. It can no longer be carried forward against future profits, which is a real cost for a company expecting to become profitable.
How the PAYE cap changes the answer
The cap is £20,000 plus 300% of relevant PAYE and NIC liabilities. A start-up with no relevant liabilities has a cap of £20,000. In Example 3 that would limit the £26,970 to £20,000 unless the company qualifies for the IP exemption. Our PAYE cap page explains the formula, the exemption and what happens to the excess.
Which scheme is better?
There is no universal answer. As a rule of thumb, ERIS pays more per pound of cost for an eligible loss-maker, and the merged scheme is the route for everyone else. The comparison turns on your intensity, the size of your loss, your payroll and how much value you put on keeping the loss for later years.
For the current rates and thresholds, see R&D tax rates. To put your own numbers through both schemes, use our R&D benefit calculator. It applies notional tax and the PAYE cap, and it is the quickest way to see a realistic range before a call.
How the base is built
The percentage is the easy part. The harder question is how much of your spending is in the base. A typical early-stage technology company might have a team of six, with each person spending a different share of their time on qualifying projects. Only that share of each person's salary, employer National Insurance and pension contribution counts. Add the consumables and software used on the projects, plus 65% of any payments to unconnected subcontractors, and you have the base.
So two companies with the same total spending can have very different claims. One that can show clearly who worked on the R&D, and for how long, will usually have a larger and safer base than one working from rough estimates. Our qualifying costs page lists what can go in.
When the money arrives
Profit-making companies see the benefit as a lower Corporation Tax bill rather than a separate payment. Loss-making companies receive the balance after the steps in the merged scheme or, for ERIS, as the payable credit. How quickly HMRC pays depends partly on whether the claim is processed without a check, so complete and consistent forms matter.
What these examples leave out
The figures above are our own arithmetic from the published rates. They ignore group surrender, other HMRC debts, ring-fenced trades, which have different rates, and any reduction to a claim after an HMRC check. They also assume every pound of cost qualifies. In practice, the biggest swing factor is usually how much of your spend is genuinely qualifying, which is a question of project evidence and cost apportionment rather than rates.
Talk to us
If you would like a figure for your company, book a call. Send us your accounting period, your likely qualifying costs and your payroll figures. We will tell you which scheme applies and what the claim is likely to be worth. Every claim we prepare is reviewed and signed off by a Chartered Tax Adviser.
This article is general information, not advice. Rates and rules can change, and the effect depends on your circumstances.
