It has to be a company within the charge to Corporation Tax
R&D tax relief is given through the Corporation Tax system. The claimant has to be a company that is trading and chargeable to UK Corporation Tax. HMRC’s guidance puts it plainly: the merged scheme credit can be claimed by companies who are trading and are chargeable to Corporation Tax.
That leaves unincorporated businesses out. A sole trader or an ordinary partnership is taxed through income tax, not Corporation Tax, so this relief is not open to them, however genuine and technical the work. The first question is not “is this R&D?” but “is the claimant a company that pays Corporation Tax?”.
Being a company is necessary, but not sufficient. The work still has to meet the definition of R&D for tax purposes, which is narrower than the everyday meaning and is set out in what counts as R&D for tax purposes. This page is about the company-level conditions, so for the rest of it, assume the activity genuinely qualifies and ask whether the company can claim.
The merged scheme: how most companies claim now
For accounting periods beginning on or after 1 April 2024, the two older schemes, the SME scheme and the R&D Expenditure Credit (RDEC), were combined into a single merged scheme. Large companies and SMEs now claim under the same rules.
The merged scheme gives an expenditure credit, currently 20% of the company’s qualifying R&D expenditure. The credit sits above the line in the accounts and is itself taxable, so 20% is not the net cash benefit. Profit-making and loss-making companies can both claim under it.
| Merged scheme | ERIS | |
|---|---|---|
| Who it is for | Most companies, large and small | Loss-making, R&D-intensive SMEs |
| Profit or loss | Either | Loss-making only, before the R&D deduction |
| The deciding test | Qualifying R&D activity | That, plus the 30% intensity test and SME size |
| Form of relief | 20% taxable expenditure credit | Extra 86% deduction, plus a payable credit up to 14.5% |
ERIS is the narrower, enhanced route.
ERIS: the enhanced route for loss-making, R&D-intensive SMEs
Alongside the merged scheme there is a more generous route, Enhanced R&D Intensive Support (ERIS). It is narrower, and the conditions are strict. A company can use it only where all of the following hold:
- it is an SME, on the size test below;
- it is loss-making, before the extra R&D deduction is taken; and
- it is R&D-intensive, meaning its qualifying R&D spend is a large enough share of its total spend.
HMRC is explicit that enhanced support under ERIS is only available to R&D-intensive SMEs which are, before taking the additional deduction, making a trading loss for tax purposes. A profitable SME does not use ERIS; it claims under the merged scheme.
The intensity test
The intensity test is the part that catches companies out, and it is worth understanding before assuming ERIS applies. A company is R&D-intensive if its qualifying R&D expenditure is at least a set percentage of its total relevant expenditure, and the spending of connected companies counts in that calculation.
For accounting periods beginning on or after 1 April 2024, that threshold is 30%. It was higher before, at 40%. Because connected companies are counted, a small company’s own high R&D share can be diluted by spending elsewhere in its group.
What counts as an SME
ERIS is only for SMEs, so the size test matters. Broadly, a company is an SME for R&D purposes if it has fewer than a set number of staff and is under a turnover or balance-sheet limit. The limits are set in euros, not pounds, which is a common source of error.
For a company that does qualify, ERIS gives an extra deduction on top of the normal 100%, and a loss-making company can surrender the resulting loss for a payable tax credit. There is also a one-year grace period. A company that met the intensity test and claimed in its last 12-month accounting period can be treated as still intensive in the following period. That smooths a single year where spend dips below the threshold.
Interactive guide
Where might your company stand?
Where this points
This is a general guide, not advice. The conditions are detailed and the activity test is a separate question, so the only way to be sure is a short conversation.
Talk it through with usConnected and linked companies
For the size tests, a company is rarely looked at on its own. The rules bring in connected companies, so that a small company cannot qualify as an SME, or as R&D-intensive, simply by sitting inside a larger structure.
There are two kinds of relationship. Linked enterprises, broadly where one company controls another or both are under common control, have their staff, turnover and balance-sheet figures added in full. Partner enterprises, a holding below control but above a set level, are brought in proportionally, by the percentage of capital or voting rights held. The same connected spending is counted in the R&D-intensity calculation.
The practical effect is that group structure can decide the route. A loss-making subsidiary that looks small on its own may be over the SME limits once the group is counted, which closes ERIS even though the merged scheme remains open to it.
You have to be a going concern
There is a separate financial-health condition: the company has to be a going concern. In practice that is judged against its latest published accounts. They have to have been prepared on a going-concern basis, and that status must not depend on the company receiving the R&D relief itself.
A company in administration or liquidation cannot claim. For a payable credit, the company has to be a going concern at the time the claim is made. If it stops being one after claiming, the claim is treated as not having been made. That does not claw back a credit already paid. There is a narrow exception: a company is still treated as a going concern where the only reason its accounts were not prepared on that basis was a transfer of its trade within a group.
Who does not qualify, or qualifies for less
The honest part, and the part most adviser content skips. Several companies that feel like obvious candidates do not qualify, or qualify for less than they expect:
An unincorporated business
A sole trader or ordinary partnership is outside Corporation Tax, so outside this relief.
A company doing no qualifying R&D
Doing difficult, skilled work is not enough on its own; the activity has to meet the R&D test, which is a separate question.
A profitable company hoping for ERIS
ERIS is for loss-making companies; a profitable company claims under the merged scheme instead.
A loss-making SME in a larger group
Once connected companies are counted, it may be over the SME limits, which closes ERIS.
A company that is not a going concern
As covered above, this restricts or prevents a claim.
Work contracted out to you
Usually the company that decided to undertake the R&D is entitled to claim, not a contractor working to a specification.
Overseas or non-UK-PAYE costs
Overseas-performed contractor work, and workers whose pay is outside UK PAYE, are generally outside qualifying costs now, with limited exceptions.
And the standing point, true for every company: HMRC paying a claim is not HMRC approving it. The company stays responsible for the claim, whoever prepared it.
The claim is the company’s
Whichever route applies, the claim is the company’s own. It is made on the company’s Corporation Tax return, and a senior person in the company who is responsible for the R&D claim stands behind the figures. Every claim has to be supported by an Additional Information Form, submitted before or with the return, and most companies now have to send HMRC a separate claim notification first, within a set window. There is also a cap on any payable amount, set by reference to the company’s own PAYE and National Insurance.
An adviser can prepare a claim and support the company through it, but the responsibility stays with the company and its named officer. A company can also prepare and submit a claim itself, without an adviser.
- HMRC, Research and Development (R&D) tax relief: the merged scheme and enhanced R&D intensive support, gov.uk
- HMRC, CIRD121000 and CIRD123000 (enhanced R&D intensive support and the intensity condition), Corporate Intangibles Research and Development Manual, gov.uk
- HMRC, CIRD91600 to CIRD91900 (the SME definition, and linked and partner enterprises), Corporate Intangibles Research and Development Manual, gov.uk
- HMRC, CIRD81130 and CIRD89820 (going concern), Corporate Intangibles Research and Development Manual, gov.uk
- HMRC, CIRD140000 (the PAYE and NIC cap), Corporate Intangibles Research and Development Manual, gov.uk
- HMRC, Tell HMRC you want to claim R&D tax relief (claim notification), and the Additional Information Form guidance, gov.uk
Frequently asked questions
Can a sole trader or partnership claim R&D tax relief?
No. The relief is given through Corporation Tax, so the claimant has to be a company within the charge to UK Corporation Tax. A sole trader or an ordinary partnership is not, so the relief is not open to them, however genuine the work.
Do we have to be profitable to claim?
No. Profit-making and loss-making companies can both claim under the merged scheme. The enhanced route, ERIS, is open only to loss-making companies that are R&D-intensive SMEs, so a profitable company uses the merged scheme rather than ERIS.
We are part of a larger group. Does that change anything?
It can. For the size tests that decide whether you are an SME, the figures of linked and partner companies are brought into yours. A small company inside a large group can be over the SME limits once the group is counted, which can close off the enhanced route even where the rest of the test is met.
We received a grant for the project. Can we still claim?
Possibly. Under the merged scheme the old restriction that reduced relief for subsidised or grant-funded costs no longer applies, so a grant does not automatically cut the relief. The activity still has to meet the R&D test, which is a separate question.
Does HMRC confirm we qualify before paying?
No. Payment is not approval. HMRC can and does check claims after paying them, and the company stays responsible for the claim it has made. A claim being paid tells you nothing about whether it was correct.