R&D Tax Credits: The Merged Scheme Rates Explained (2026/27)
The old SME and RDEC R&D schemes have been merged into a single scheme for most companies, with a separate, more generous regime for R&D-intensive loss-making SMEs. Here's exactly how the rates work now.
Why the schemes were merged
Before April 2024, the UK ran two separate R&D tax relief regimes: the SME scheme (a more generous, profit-and-loss based relief for smaller companies) and RDEC (Research and Development Expenditure Credit, a taxable, above-the-line credit mainly used by larger companies and SMEs claiming for subcontracted or grant-funded R&D). Persistent complexity, fraud and error concerns, and the difficulty of determining which scheme a company should use led the government to merge them into a single scheme, broadly following the RDEC mechanics, for accounting periods beginning on or after 1 April 2024.
R&D Tax Relief Calculator
Estimate UK R&D tax credit benefit under the SME scheme, merged RDEC scheme or pre-April-2023 SME rules.
Open R&D Tax Relief calculatorThe merged scheme rate
| Element | Rate |
|---|---|
| Taxable expenditure credit | 20% of qualifying R&D expenditure |
| Net benefit after 25% corporation tax (main rate) | Approximately 15% |
| Net benefit after 19% corporation tax (small profits rate) | Approximately 16.2% |
The credit is calculated as 20% of your qualifying R&D expenditure and is itself treated as taxable income, so the actual cash or tax-bill benefit you realise is lower than the headline 20% once corporation tax is applied to the credit itself.
Worked example
A profitable company with £200,000 of qualifying R&D expenditure, paying corporation tax at the 25% main rate.
| Step | Amount |
|---|---|
| Qualifying R&D expenditure | £200,000 |
| R&D expenditure credit (20%) | £40,000 |
| Corporation tax on the credit (25% of £40,000) | £10,000 |
| Net benefit | £30,000 (15% of the original £200,000 spend) |
The separate scheme for R&D-intensive, loss-making SMEs
Recognising that early-stage, loss-making companies investing heavily in R&D (often the most innovation-focused, cash-constrained businesses) would be disadvantaged by the standard merged scheme's mechanics, a separate, more generous regime remains available specifically for R&D-intensive SMEs.
| Condition | Requirement |
|---|---|
| Qualifying as R&D-intensive | Qualifying R&D expenditure must be at least 30% of total company expenditure |
| Loss-making | Company must be loss-making for the relevant period |
| Enhanced deduction | An enhanced rate of additional deduction on qualifying costs, beyond the standard 100% |
| Payable credit rate | A higher payable tax credit rate than the standard merged scheme, reflecting the greater relief intensity for genuinely R&D-focused small companies |
Comparison: merged scheme vs R&D-intensive SME scheme
| Feature | Merged scheme (most companies) | R&D-intensive loss-making SME scheme |
|---|---|---|
| Applies to | Most companies, profitable or loss-making, any size | Loss-making SMEs with R&D spend ≥30% of total expenditure |
| Credit structure | 20% taxable expenditure credit | Enhanced deduction + higher payable credit rate |
| Taxable? | Yes (above-the-line credit) | Enhanced deduction reduces taxable profit; payable credit calculated separately |
| Typical net benefit | ~15-16.2% of qualifying spend | Higher, reflecting the enhanced regime's intent to support cash-strapped, genuinely R&D-focused start-ups |
Subcontracted R&D: who claims now
Under the old rules, whether a company or its subcontractor could claim R&D relief for subcontracted work was a frequent source of confusion and dispute. The merged scheme simplifies this by generally allocating the right to claim to the company that made the decision to undertake the R&D and bears the risk, rather than automatically the subcontractor actually carrying out the work — with specific anti-double-claiming provisions to prevent both parties claiming for the same expenditure.
What counts as qualifying R&D expenditure
The underlying definition of qualifying R&D itself — a genuine advance in science or technology, resolving scientific or technological uncertainty that a competent professional in the field could not readily deduce — is unchanged by the scheme merger. What changed is the mechanics of the relief calculation, not the underlying eligibility test for what counts as R&D in the first place.
Use our R&D tax relief calculator to estimate your net benefit under the merged scheme, and our corporation tax calculator to see the combined effect on your company's overall tax position.
Frequently asked questions
What replaced the separate SME and RDEC R&D schemes?
A single merged R&D expenditure credit scheme now applies to most companies claiming R&D relief, regardless of size, calculated as an above-the-line taxable credit on qualifying R&D expenditure, broadly following the mechanics of the old RDEC scheme rather than the old SME scheme.
What rate does the merged scheme give?
The merged scheme gives a 20% taxable expenditure credit on qualifying R&D costs, which after corporation tax is deducted, nets down to broadly 15-16.2% depending on the claimant's corporation tax rate.
Is there still a special regime for loss-making SMEs?
Yes. R&D-intensive, loss-making SMEs (where qualifying R&D expenditure is at least 30% of total expenditure) can claim under a separate, more generous scheme (sometimes referred to as the ERIS/enhanced intensive scheme), giving an enhanced deduction and a higher payable credit rate than the standard merged scheme.
How is the merged scheme credit taxed?
The 20% credit is treated as taxable income of the company (above-the-line), meaning corporation tax is charged on the credit itself before the net benefit is realised, either as a reduction in the company's tax bill or, in limited circumstances, a payable cash credit.
Does subcontracted R&D work still qualify under the merged scheme?
Yes, but the rules on who can claim for subcontracted R&D have been simplified so that generally the company making the decision to undertake the R&D (rather than automatically the subcontractor) claims the relief, with specific rules to prevent double claiming between contracting parties.
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