Why loss-making companies are not excluded
R&D relief was built with pre-profit companies in mind. A business spending on genuine technical development years before revenue is exactly the case Parliament chose to support. So both current routes can end in a payment rather than a tax reduction. The merged scheme runs its credit through a set of offsetting steps and can pay out what remains. ERIS lets a qualifying company surrender its enhanced loss for a payable credit.
Which route applies is not a choice you make freely. If you meet all of the ERIS gates, SME size, loss-making before the extra deduction, and R&D-intensive on the strict spending test, ERIS is available and usually worth more. Otherwise, the merged scheme is the route. The gates, rates and the intensity arithmetic live on ERIS explained.
The going-concern condition, which matters most here
There is an awkward tension in the rules: the scheme designed for companies burning cash requires the company to be a going concern. The test is statutory, not a feeling: your latest published accounts must have been prepared on a going-concern basis, and that status must not depend on receiving the R&D relief itself. A company in administration or liquidation cannot claim, and a payable credit requires going-concern status at the time the claim is made.
For most funded startups this is a paperwork point. It becomes real when accounts are signed late, when auditors flag material uncertainty, or when the accounts are only a going concern because a rescue is assumed. If your next accounts might carry a going-concern note, sequence the claim with your accountant deliberately rather than discovering the interaction afterwards.
The PAYE cap, in one honest paragraph
Payable amounts are capped by reference to the company’s PAYE and National Insurance liabilities, plus a fixed allowance. The cap was designed to stop payable credits flowing to companies with little real UK payroll, and it mostly affects young companies that outsource heavily or pay founders little. Under the merged scheme, an excess above the cap carries forward; under ERIS, a claim above the cap is invalid, which is less forgiving. If your headcount is small and your claim is large, model the cap before you rely on the cash. The mechanics and the exemption are on the PAYE cap.
When a loss-making claim goes wrong
The failure modes we would flag before you claim:
- The loss is an accounts number, not a tax number. ERIS tests the trading loss for tax purposes before the additional deduction. Accounting losses with big add-backs can compute to a tax profit, and the route changes.
- Group and investor structures dilute intensity. Connected companies count in the intensity ratio. A clean 40% intensity can become 12% the day a group consolidates around you.
- The cash was spent twice. Founders sometimes treat an expected credit as banked before the claim is filed, checked or paid. Payment is not approval, and HMRC can and does check claims after paying them.
- The claim leans on overseas contractors. Most overseas contractor and non-UK-PAYE worker costs are excluded now, and pre-2024 claim values are a bad guide to current ones.
- The work itself does not qualify. Being loss-making buys no latitude on the definition. Start at what counts as R&D before counting money.
If your situation sits in one of those bullets, the honest answer may be a smaller claim, a different route, or no claim this year. We will say which, plainly, before any fee is agreed.
- HMRC, Research and Development (R&D) tax relief: the merged scheme and enhanced R&D intensive support, gov.uk
- HMRC, CIRD121000 (enhanced R&D intensive support: overview), Corporate Intangibles Research and Development Manual, gov.uk
- HMRC, CIRD191000 (reformed reliefs: going concern), Corporate Intangibles Research and Development Manual, gov.uk
- HMRC, CIRD140000 (the PAYE cap), Corporate Intangibles Research and Development Manual, gov.uk
Frequently asked questions
Can a company with no Corporation Tax bill really get cash back?
Yes. Both routes can produce a payable amount for a loss-making company: the merged scheme after a series of offset steps, and ERIS by surrendering the enhanced loss for a credit. Payable amounts are capped by reference to your PAYE and National Insurance.
We have never made a profit. Does that matter?
Not in itself. What matters is the statutory going-concern condition: your latest published accounts must be prepared on a going-concern basis, and payable credits need that status at the time of the claim. Persistent losses only become a claim problem when they threaten that.
Does claiming while loss-making increase enquiry risk?
Cash-payable claims attract more scrutiny than tax reductions, across schemes. The answer is not to avoid claiming; it is records, a sound technical case and honest numbers, so the claim holds if HMRC looks.
Should we wait until we are profitable to claim?
Usually not. Claims run to time limits by accounting period, and value forgone rarely comes back. The right question is whether the claim is sound now, not whether the timing feels safer later.