The new merged R&D scheme, effective for accounting periods beginning on or after 1 April 2024, reduces the benefit for many SMEs. However, Enhanced R&D Intensive Support (ERIS) continues to provide higher relief for loss-making companies that spend heavily on R&D.
What is ERIS?
ERIS allows loss-making SMEs to surrender enhanced R&D losses for a 14.5 per cent tax credit, offering an effective benefit of around 27 per cent of qualifying costs. This compares favourably with roughly 16 per cent under the merged regime.
Who Qualifies?
To use ERIS, a company must:
- Qualify as an SME under HMRC’s definition.
- Be loss-making before applying the R&D enhancement.
- Have R&D expenditure equal to at least 30 per cent of total relevant expenditure.
A one-year grace period applies if the company met the threshold in the previous year but falls slightly below it in the current period.
Why It Matters
The merged regime’s 20 per cent taxable credit benefits profitable companies most. ERIS exists to support those investing heavily in innovation but not yet generating profit. For these firms, the cashflow advantage can be significant.
For example, £200,000 of qualifying R&D spend under ERIS could return around £54,000 in cash, compared with about £32,000 under the merged scheme.
Points to Watch
- Overseas subcontractor costs rarely qualify after April 2024.
- The PAYE/NIC cap still limits payable credits.
- Evidence of R&D intensity must be well-documented and include connected entities.
Final Thoughts
ERIS remains a vital incentive for the UK’s most innovative SMEs, preserving meaningful support for companies driving genuine technological progress.
If you believe your business may qualify, contact us for a detailed assessment.
Christopher Toms MA MAAT
Compliance Director, RandDTax