The merged scheme arithmetic
The credit is 20% of qualifying expenditure, and it is taxable as trading income. That single fact drives all the honest numbers:
- A company paying the main Corporation Tax rate of 25% keeps 20p less a quarter: 15p per £1.
- A company at the 19% small profits rate keeps 16.2p per £1.
- Between the £50,000 and £250,000 profit thresholds, marginal relief puts the effective outcome between those two.
For loss-makers, the mechanics differ but the logic holds: the payable amount is reduced by a notional tax deduction, which HMRC applies at the small profits rate for loss-making companies. That was a deliberate choice in the Autumn Statement 2023 technical note, so that loss-makers keep more cash up front. The remainder, after the offset steps and the PAYE cap, is payable.
The ERIS arithmetic
A qualifying company deducts an extra 86% of qualifying spend, on top of the normal 100%, and surrenders the loss for a payable credit of up to 14.5%. The credit is not taxable. At its fullest, £1 of qualifying spend generates £1.86 of surrenderable loss, and £1.86 × 14.5% is just under 27p.
Reality trims that ceiling. The surrenderable loss is limited by the company’s actual loss position, and the payable amount by the PAYE cap, under which an ERIS claim above the cap is invalid rather than deferred.
What moves the answer most
In practice the variables that change claim value are, in order: the qualifying-cost base (apportionments, the 65% rules, overseas exclusions), the route (merged versus ERIS), your Corporation Tax rate band, and the PAYE cap. The rates come last. Which is the honest reason to distrust any calculator, including ours, until the base has been worked properly: the rate is public, your base is not.
- HMRC, Research and Development (R&D) tax relief: the merged scheme and enhanced R&D intensive support, gov.uk
- HMRC, technical note on changes to R&D tax reliefs at Autumn Statement 2023 (notional tax at the small profits rate for loss-makers), gov.uk
- HMRC, Corporation Tax rates and Marginal Relief, gov.uk
- HMRC, CIRD112100 (new RDEC: amount of credit and notional tax), Corporate Intangibles Research and Development Manual, gov.uk
Frequently asked questions
Why is the merged credit not simply worth 20p per pound?
Because the credit is itself taxable as trading income. After Corporation Tax at 25% the 20p becomes 15p; at the 19% small profits rate it becomes 16.2p. The headline is a gross number, and every honest calculation nets it down.
What is ERIS worth compared with the merged scheme?
For a qualifying company, up to roughly 27p per pound of qualifying spend, arrived at by surrendering the enhanced loss (186% of spend) for a 14.5% credit, which is not taxable. That premium over the merged scheme is why the strict gates exist.
Can we just multiply our R&D budget by these rates?
No. The base is qualifying expenditure, which is narrower than an R&D budget: apportioned staff time, 65% of most bought-in work, overseas exclusions and category limits all apply before any rate does. The base, not the rate, is where most estimates go wrong.
Do these figures include the PAYE cap?
The examples note it, but the cap is a separate overlay on payable amounts: £20,000 plus 300% of relevant PAYE and NIC. Companies with thin UK payroll should model it before relying on any cash figure.