The UK's R&D tax incentive landscape has changed significantly over the last two years and many businesses are still unsure how the new rules affect them.
Whether you've claimed before, are considering making your first claim or have delayed reviewing your eligibility, it is important to understand how the new regime could affect both eligibility and the value of the incentive available.
What is the Merged R&D Tax Scheme?
The Merged R&D Tax Scheme is the UK's current framework for rewarding innovation through tax incentives. It combines the previous SME R&D Tax Relief and Research and Development Expenditure Credit (RDEC) regimes into a single scheme for most businesses, while the Enhanced R&D Intensive Support (ERIS) scheme provides additional support for qualifying loss-making, R&D-intensive SMEs.
The scheme is designed to encourage businesses to invest in research and development by providing financial support for qualifying R&D activities and expenditure. Under the merged scheme, eligible businesses can claim support worth up to 27% of qualifying R&D expenditure, depending on company’s tax position and circumstances. While the framework was introduced to simplify the R&D tax incentive system, it also brought important changes that can affect how claims are prepared and the level of support available.
What is the Enhanced R&D Intensive Support (ERIS) Scheme?
While most businesses now claim under the Merged R&D Expenditure Credit, the Enhanced R&D Intensive Support (ERIS) scheme provides additional support for eligible loss-making SMEs that invest heavily in research and development.
To qualify, a company must meet the relevant eligibility criteria, including the R&D intensity threshold set by HMRC. For businesses that qualify, ERIS offers a higher level of incentive than the standard merged scheme, helping innovative companies continue investing in R&D during periods of growth and development.
If your business is loss-making and undertakes significant R&D activity, it's important to assess whether the ERIS scheme could provide greater support than the standard merged regime.
Where are we now?
For accounting periods beginning on or after 1 April 2024, the UK's Merged R&D Expenditure Credit applies to most companies undertaking R&D, replacing the previous SME R&D incentive and RDEC regimes for these periods. Alongside this, ERIS provides additional incentive for qualifying loss-making, R&D intensive companies that meet the relevant conditions.
Although the reforms were intended to simplify the R&D tax incentive system, the rules have introduced important changes that businesses need to consider, including:
- How claims are calculated
- Which categories of expenditure can qualify
- The treatment of subcontracted R&D
- Restrictions relating to overseas R&D expenditure
- Documentation and compliance expectations
- The level of technical evidence required to support a claim
Has your business reviewed its position recently?
Innovation hasn’t stopped because the legislation has changed. However, some businesses have not revisited their R&D tax position since the new rules were introduced.
You may want to review your position if any of the following apply to your business:
- You continue to invest in developing or significantly improving products, processes, software or technology. You've assumed you're no longer eligible because the rules changed.
- Your profitability, R&D expenditure or funding arrangements have changed.
- Your previous claims were prepared under the old SME or RDEC schemes.
- You're unsure whether your technical activities still qualify.
Even for established R&D claimants, the same projects and expenditure can produce a very different tax outcome under the new regime.
Why reviewing your claim matters
HMRC continues to scrutinise R&D tax incentive claims closely, with a strong focus on the quality and accuracy of the information provided. Clear technical documentation, well-supported project narratives and robust financial analysis remain fundamental to preparing a compliant and defensible claim. Taking the time to review your R&D activities can help ensure you're claiming correctly, maximising the support available and reducing unnecessary compliance risk.
How CBTax can help
At CBTax, we work alongside innovative businesses to understand their projects, identify qualifying activities and prepare robust, evidence-based R&D tax incentive claims.
With the R&D regime continuing to evolve, taking a proactive approach to eligibility, evidence and claim preparation is increasingly important.
If your business hasn't reviewed its R&D position recently or you're unsure how the merged scheme affects you, our specialists can help you understand your options and ensure you're claiming with confidence.
Get in touch with us at https://www.cbtax.com/contact.