Understanding the Merged R&D Tax Relief Scheme
- Omar Aswat
- Feb 20, 2025
- 5 min read
Updated: Dec 22, 2025
From 1 April 2024, the UK’s R&D tax relief system changed significantly with the introduction of the merged R&D tax relief scheme. This new framework replaces the previous SME R&D tax relief and R&D Expenditure Credit (RDEC), consolidating them into a single system. The goal is to make the claims process simpler and more efficient while continuing to support UK innovation.
Understanding how the merged scheme works is essential for profit-making and loss-making SMEs as well as large businesses engaged in R&D. This guide outlines key changes and how to navigate the new requirements.
Table of Contents
What is the Merged Scheme?
The merged R&D tax relief scheme simplifies the previous tax relief incentives by integrating SME R&D tax relief and RDEC. It applies to accounting periods beginning on or after 1 April 2024.
Key Updates:
Businesses cannot claim under both ERIS and the merged scheme for the same costs.
The RDEC rate is now 20% for all qualifying R&D activities.
Loss-making R&D-intensive SMEs can deduct an extra 86% under Enhanced R&D Intensive Support (ERIS).
Key Features of the Merged Scheme
Expenditure Credit Rate: 20% for R&D expenditure, available to both SMEs and large companies.
Loss-Making R&D Intensive SMEs: These businesses can deduct an extra 86% of their qualifying costs, as well as the standard 100%, making a total of 186% deduction, and they can claim a payable tax credit worth up to 14.5% of the surrenderable loss.
PAYE Cap: The PAYE cap limits the amount of payable credit a business can receive. The cap is set at £20,000 plus 300% of the company’s relevant PAYE and National Insurance Contributions liabilities. If the claim exceeds this cap, the excess is carried forward to the next accounting period.
Enhanced R&D Intensive Support (ERIS)
Loss-making SMEs that qualify as R&D intensive can benefit from ERIS. This includes a larger claim allowance and a higher payable credit than what’s available to non-R&D intensive SMEs. To be considered R&D intensive, at least 30% of the company’s total expenditure must be on R&D.
For R&D intensive SMEs, ERIS allows for:
186% Deduction on R&D expenditure, incorporating both the 100% standard deduction and an additional 86% under the ERIS.
Payable Tax Credit: A payable credit worth up to 14.5% of the surrenderable loss.
Who Can Claim Under the Merged Scheme?
The merged scheme is available to all companies that are trading, chargeable to Corporation Tax, and involved in qualifying R&D projects. Specifically, this includes:
Profit-Making SMEs with qualifying R&D expenditure
Loss-Making R&D Intensive SMEs with more than 30% of total expenditure on qualifying R&D
Large Companies with qualifying R&D expenditure
The merged scheme also simplifies claims by offering the same expenditure rules for both SMEs and large companies, though the method of calculation differs.
Claiming R&D Relief Under the Merged Scheme
You can choose to claim under the merged scheme even if you are eligible for ERIS, but you cannot claim both for the same expenditure. The merged scheme applies to accounting periods beginning on or after 1 April 2024.
If you are claiming under the merged scheme, the tax relief is given in the form of an expenditure credit, which is taxable as trading income. For loss-making R&D intensive SMEs, the additional deduction and tax credit can provide significant support
Example: R&D Tax Relief Comparison - Old SME Scheme vs. Merged Scheme
Let’s walk through an example to help you understand how R&D tax relief calculations work under both the Old SME Scheme (April 2023 - March 2024) and the Merged Scheme (from April 2024 onwards).
Assumptions:
Company profits: £500,000 (Company pays the main rate of 25% corporation tax)
R&D spending: £250,000
1. Old SME Scheme (Pre-April 2023):
Under the Old SME Scheme, profit-making SMEs were eligible for a higher R&D tax relief rate of 21.5% on their R&D expenditure. This is an uplift of 86% on their spending and applying a 25% corporation tax rate. (0.86 * 0.25 = 21.5%)
Calculation for the Old SME Scheme:
R&D Tax Relief: 21.5% of £250,000 = £53,750
So, under the Old SME Scheme, the company would receive £53,750 in R&D tax relief for £250,000 of R&D spending.
2. Merged Scheme (From April 2024):
Under the Merged Scheme, the R&D tax relief rate for profit-making SMEs is up to 16.2%. This rate is lower than what was available under the old SME scheme. Under the merged scheme, the company receives a credit of 20% of their spending, reduced by 25% corporation tax.
Calculation for the Merged Scheme:
R&D Tax Relief: 15% of £250,000 = £37,500
So, under the Merged Scheme, the company would receive £37,500 in R&D tax relief for the same amount of £250,000 R&D expenditure.
Under the Old SME Scheme (before April 2023), a company with £250,000 in R&D expenditure would receive £53,750 in tax relief. However, under the Merged Scheme (from April 2024), the company would receive a reduced amount of £37,500 in R&D tax relief for the same R&D spending. This change reflects the lower tax relief rate of 15% under the Merged Scheme, compared to the 21.5% rate available under the old SME scheme for profit-making SMEs.
It’s important for businesses to be aware of these changes when planning their R&D tax relief claims moving forward.
How to Claim R&D Relief
Check Eligibility: Ensure that your company qualifies as a trading entity and meets the criteria for R&D activities.
Understand the Rates: Review the rates applicable for your accounting period.
Ensure Correct Documentation: Be sure to correctly document and record all qualifying R&D expenditure, including salaries, software, and subcontracted R&D.
Apply for the Credit: Submit your claim for R&D tax relief through the appropriate channels with HMRC.
If you’re unsure about whether your business qualifies or how to navigate the claims process, it’s highly recommended to seek advice from an expert R&D tax consultancy. We can ensure that your claim is accurate and maximises your benefits under the new scheme.
What Happens If You Exceed the PAYE Cap?
For businesses claiming under the merged scheme, the PAYE cap limits the amount of payable credit a company can receive. If your claim exceeds the cap, the excess is carried forward to the next accounting period.
The PAYE cap is calculated as:
£20,000 plus 300% of your company’s relevant PAYE and National Insurance Contributions liabilities.
Conclusion
The merged R&D scheme, along with Enhanced R&D Intensive Support (ERIS), introduces several important changes that could significantly impact your R&D tax relief claims from April 2024 onwards. Whether you’re a profit-making SME or a loss-making R&D intensive business, understanding the new rates and rules is crucial to maximising your relief.
To ensure that you’re making the most of the available incentives, it’s advisable to seek professional guidance tailored to your company’s specific needs. Expert advice can help you navigate the complexities of the scheme and ensure you’re fully compliant with the new regulations.
If you’re ready to explore how the merged scheme affects your business or need assistance with your R&D tax claim, contact us today for a consultation.
Meet Omar
Omar is a Chartered Tax Advisor (a.k.a an expert on tax issues) and founder of ASWATAX. He regularly shares his knowledge and best advice here in his blog and on other channels such as LinkedIn.
Book a call today to learn more about what Omar and ASWATAX can do for you.
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