R&D Tax Relief 2026/27: Merged Scheme Rates & ERIS Guide

Most directors we talk to assume R&D tax relief is for people in lab coats. It isn't. If your company has spent money this year trying to make software do something it couldn't do before, developing a new product, or working out a manufacturing process that hadn't been solved yet, some of that spend may qualify, even if the project didn't fully work.

The scheme changed shape in April 2024, and a lot of the guidance still floating around online describes the old SME scheme and the old RDEC scheme as if they're both still running separately. They're not. Here's how it actually works now.

The old two-scheme system is gone

Before April 2024, there were two separate routes: a generous SME scheme for smaller companies, and a much less generous RDEC scheme for large companies (and for SMEs that were subcontracted or grant-funded, which pushed them into the RDEC route anyway).

For accounting periods beginning on or after 1 April 2024, those two have been replaced by a single merged scheme, plus one additional layer of support that only applies to a specific group of loss-making small companies. If your company's accounting period started on or after that date, this is the version that applies to you.

The merged scheme: a 20% credit, most companies included

The merged scheme gives an expenditure credit worth 20% of your qualifying R&D costs. That 20% is added as taxable income, which is a slightly odd mechanic if you haven't seen it before: HMRC treats the credit itself as trading income, so it gets taxed before you see the benefit.

For a profitable company paying the 25% main rate of Corporation Tax, that works out to roughly 15p of net benefit for every £1 you'd otherwise have to earn to cover £1 of qualifying spend. Companies on the 19% small profits rate see a slightly better net figure, closer to 16p in the £1. It's not the windfall the old SME scheme offered, but it's a genuine reduction in the cost of the work, and it applies whether or not your company is currently profitable, since loss-making companies can still claim the credit as cash rather than an offset against tax owed.

Enhanced R&D Intensive Support: the better deal, if you qualify

There's a second scheme sitting alongside the merged one, called Enhanced R&D Intensive Support, or ERIS. It exists specifically for loss-making SMEs that spend a large share of their budget on R&D, and it's worth understanding even if you don't think you currently qualify, because the qualifying line moves depending on how your year goes.

To use ERIS, your company needs to meet two things at once: it has to be loss-making for the period, and its R&D spend has to be at least 30% of its total expenditure for that period. HMRC calls this the R&D intensity condition, and it's calculated per accounting period, not as some fixed classification your company gets once and keeps. A company that clears 30% one year and drops to 22% the next moves between schemes accordingly.

If you qualify, ERIS is a better deal than the merged scheme. You get an extra 86% deduction on top of the standard 100% you'd deduct anyway, bringing your total deduction to 186% of qualifying costs. If that creates or increases a loss, you can surrender the loss for a payable credit worth 14.5% of it. Put together, that's a cash benefit of roughly 27p for every £1 of qualifying spend, which is a meaningfully different number to the 15p or 16p under the merged scheme.

What actually counts as qualifying spend

This is where most claims either get built properly or fall apart under HMRC scrutiny. Qualifying costs broadly cover:

Staff costs for people directly working on the R&D, including salaries, employer NIC, and pension contributions, apportioned by the time they actually spent on qualifying work rather than their whole role.

Subcontractor and externally provided worker costs, though the rules on how much of this counts changed with the merged scheme and are more restrictive than they used to be for subcontracted work done overseas.

Software, consumables, and utilities used directly in the R&D activity.

Some data and cloud computing costs, which were brought into scope specifically because so much modern R&D runs on infrastructure rather than physical materials.

What doesn't qualify is anything that's routine, even if it's technically difficult. Building a competent developer implementing a well-documented API is not R&D. The test HMRC applies is whether you were trying to resolve genuine scientific or technological uncertainty that a competent professional in the field couldn't readily work out. That's a real bar, and it's the reason so many claims get challenged: the project has to have involved actual uncertainty about whether or how something could be done, not just effort.

The PAYE and NIC cap

Both schemes cap how much you can claim as a payable credit, based on your PAYE and NIC liabilities for the period. The cap is £20,000 plus 300% of your relevant PAYE and NIC bill for the period. For most small companies with a handful of staff, this rarely bites, but it's worth knowing about if you're a very small team claiming a large amount relative to your payroll, since the excess above the cap gets carried forward rather than paid out immediately.

Why the record-keeping matters more than the claiming

HMRC has significantly increased scrutiny of R&D claims over the past few years, partly in response to a wave of poorly substantiated or fraudulent claims made through claims agents who weren't properly checking the underlying work. Every claim now needs an additional information form submitted before the tax return, setting out the qualifying projects and the technological uncertainty involved.

The practical effect is that claims built from contemporaneous records, timesheets showing who worked on what, project notes describing what was actually uncertain, invoices tied to specific project costs, go through more smoothly than claims reconstructed after the fact from a rough estimate of "about 60% of the dev team's time." If you think you're doing qualifying work, the cheapest thing you can do this year is start tracking the time and cost against it properly now, rather than trying to reconstruct it at year end.

How Founders Ledger helps

Founders Ledger won't write your R&D claim for you, that's still a job for an accountant or a specialist R&D adviser who can assess whether your specific project meets the uncertainty test. But it does give you the clean, contemporaneous bookkeeping that makes a claim defensible: costs coded consistently through the year, staff and subcontractor payments tracked as they happen, and a clear trail your adviser can pull from rather than piecing together retrospectively.

You can see how it fits alongside the rest of your company's admin at foundersledger.co.uk.

This article is correct at the time of writing (September 2026) and is provided for general information only. It isn't tax advice. Whether your company or project qualifies for R&D tax relief depends on the specific facts of your work, and the eligibility tests involve real judgement calls. Speak to a qualified accountant or R&D tax specialist before submitting a claim.