# A Guide to the Merged R&D Tax Relief Scheme The UK's unified R&D tax relief framework merges the SME and RDEC schemes into a single 20% gross credit. Explore eligibility, the ERIS pathway, expense rules, and overseas limits. **Published:** 2026-07-03 **Updated:** 2026-07-04 **Source:** https://aztajournal.com/gb/merged-rd-tax-relief-guide --- > The unified UK research and development tax relief framework simplifies corporate incentives. It replaces the separate SME and RDEC programs with a single, above-the-line system while introducing strict rules for overseas expenditures and intensive small businesses. The merged R&D tax relief scheme operates as a single, above-the-line credit system that subsidises eligible UK innovation costs. Eligible companies claim a taxable credit worth 20% of their qualifying research and development spend, which directly offsets their Corporation Tax liability or provides a payable cash sum. This unified model streamlines the claiming process by applying the same core guidelines to businesses of all sizes. ## Key Takeaways: Crucial changes to HMRC R&D tax credits For financial directors assessing the transition, the unified framework changes how credits are calculated, applied, and monitored. The previous dual-track system has been consolidated to reduce administrative complexity and standardise the tax treatment of innovative activities. | Feature | Old SME Scheme | Old RDEC Scheme | New Merged Scheme (Post-April 2024) | | --- | --- | --- | --- | | Target Audience | Small and medium enterprises | Large companies and some SME subcontracts | All companies (universal framework) | | Primary Relief Rate | Up to 186% tax deduction | 20% gross credit | 20% gross credit | | Accounting Treatment | Below-the-line deduction | Above-the-line income | Above-the-line income | | Overseas Expenditure | Generally allowed | Generally allowed | Highly restricted to UK activities | ## How does the merged R&D tax relief scheme work? The merged scheme functions via an above-the-line gross credit of 20% on all qualifying expenditure. Because the credit is treated as taxable income within your pre-tax accounts, your prevailing Corporation Tax rate determines the final cash value. The exact net benefit is calculated using these specific rates: 1. For companies paying the 19% small profits rate of Corporation Tax, the net benefit is approximately 16.2p for every £1 of qualifying spend. 2. For companies paying the 25% main rate of Corporation Tax, the net reduction in liability yields a net benefit of 15p for every £1 of qualifying spend. ## What is the merged R&D scheme? The merged R&D scheme is the statutory tax relief framework that combines the previous Small and Medium Enterprise and Research and Development Expenditure Credit programs into one unified system. Under Schedule 1 to the Finance Act 2024, this single system applies to all company accounting periods beginning on or after 1 April 2024. ## Who is eligible to claim under the merged R&D scheme? Any UK corporation subject to Corporation Tax that incurs valid expenses to resolve scientific or technological uncertainties can claim relief. Under the unified rules, the following business scenarios are eligible to claim: - Profit-making companies of any size seeking to reduce corporate tax liabilities. - Loss-making companies of any size, which can receive cash payments or carry credits forward via a statutory seven-step calculation process. - SMEs that previously claimed under the historic, separate SME tax credit pathway. ## What is the Enhanced R&D Intensive Support (ERIS)? The Enhanced R&D Intensive Support is a specialised exception designed to protect innovative, loss-making small and medium enterprises. If a loss-making SME attributes at least 30% of its total business expenditure to qualifying R&D, it can claim under ERIS rather than the merged RDEC. This pathway provides a higher payable cash credit worth up to 27% of the qualifying expenditure. Eligible companies must choose between claiming under ERIS or the merged scheme, as seeking relief under both for the same expenditure is prohibited. ## What qualifying R&D expenses can you claim for? Eligible operational costs must support direct solutions to technical uncertainties. 1. Staff costs including gross salaries, employer National Insurance Contributions, and employer pension contributions. 2. Subcontracted R&D activities, subject to specific regulatory oversight regarding who directs the project. 3. Externally Provided Workers, such as agency staff working under the direct supervision of the claimant. 4. Software licenses, data licences, and cloud computing services utilized directly for research activities. 5. Consumable materials, including heat, water, and power consumed during the project. 6. Direct payments made for clinical trial volunteers and resources. ## Are overseas R&D costs still eligible for tax relief? Overseas R&D activities are generally excluded from UK tax incentives under the new territoriality guidelines. Subcontracted R&D and payments for Externally Provided Workers must take place within the UK to qualify for relief. Foreign expenditures are only permitted if specific geographic, environmental, social, or regulatory conditions prevent the research from being conducted domestically. Factors such as lower overseas labor costs or staff availability do not qualify as valid exceptions. ## What expenditures are excluded from R&D tax relief? HMRC actively rejects claims for general business costs that do not resolve technological uncertainties. - Routine software development and commercial application upgrades without technical scientific advancement. - Marketing, market research, advertising, and promotional campaigns. - General overheads, including rental payments, business rates, and recruitment agency fees. - Capital expenditures, which must be claimed separately under specific Capital Allowances. ## How do you calculate the R&D PAYE cap? The statutory PAYE cap limits the cash sum available to prevent artificial corporate structures from abusing the relief. The cap is calculated by taking a baseline of £20,000 and adding 300% of the company's total PAYE and National Insurance Contributions liabilities for the period. Any cash credit that exceeds this combined limit cannot be paid out immediately. Instead, the excess credit is carried forward to be offset against Corporation Tax liabilities in future accounting periods. ## How to submit a claim under the new HMRC R&D rules Submitting a valid claim requires following strict digital submission timelines and structural guidelines. 1. Submit a digital Claim Notification Form within six months of the end of the accounting period if you are a new claimant. 2. Complete and submit the mandatory online Additional Information Form before or alongside your tax return. 3. Enter the calculated R&D tax credit details on the CT600 Corporation Tax return, including the supplementary R600 pages. 4. Await HMRC processing, which generally takes four to six weeks for standard claims and up to three months for first-time submissions. ## How does a split accounting period affect your R&D claim? Accounting periods that straddle the transition date of 1 April 2024 must be bifurcated for tax purposes. Expenses incurred before 1 April 2024 must be calculated using the previous, separate SME or RDEC regulations. Expenses incurred on or after 1 April 2024 must be calculated under the new, unified rules. Companies must use a precise, justifiable apportionment method to split these costs within their single tax filing. ### What is the new merged R&D tax credit rate? The new merged R&D tax credit rate is a gross, above-the-line credit of 20% on qualifying R&D expenditure. The net value equals approximately 15p per £1 spend for companies taxed at the 25% main rate, and 16.2p per £1 spend for businesses taxed at the 19% small profits rate. ### When did the merged R&D scheme come into effect? The merged R&D scheme came into effect for all corporate accounting periods starting on or after 1 April 2024, as enacted under the provisions of Schedule 1 to the Finance Act 2024. ### Can loss-making SMEs still get cash payouts under the merged scheme? Yes, loss-making SMEs can still receive cash payouts under the merged scheme via a structured seven-step tax calculation, or they may qualify for a higher 27% payable cash credit if they meet the 30% intensity threshold under the Enhanced R&D Intensive Support (ERIS) rules. ### What is the claim notification deadline for R&D tax relief? The digital claim notification must be submitted to HMRC within six months of the end of the relevant accounting period. This requirement applies to first-time claimants or companies that have not submitted an R&D claim in the previous three years. ### How does the PAYE cap affect small business R&D claims? The PAYE cap limits the immediate payable cash credit to a maximum of £20,000 plus 300% of the company's total PAYE and National Insurance Contributions liabilities. Any credit amount exceeding this limit is not lost but must be carried forward to offset future Corporation Tax.