Comparison · R&D Tax Relief · 2026
R&D SME Relief vs RDEC 2026: Which Scheme Applies After the Merger?
The R&D landscape was transformed in August 2023 when the merged scheme (ERIS) replaced most SME and RDEC claims. But the old schemes still matter for R&D-intensive SMEs and for understanding the value of claims. This guide maps all three schemes -- old SME (86% deduction), RDEC legacy, and ERIS (15%/20%) -- with 2026/27 rates and worked examples.
TL;DR -- 2026/27 R&D Rate Summary
- • ERIS (merged scheme, from Aug 2023): 15% above-the-line credit (standard); 20% (R&D-intensive SMEs)
- • Old SME scheme (R&D-intensive only): 86% enhanced deduction; 10% payable credit for losses
- • Old RDEC (pre-Aug 2023): 13% above-the-line credit -- now largely replaced by ERIS
- • R&D-intensive threshold: R&D spend at least 30% of total expenditure
- • Notification required: within 6 months of accounting period end (from April 2023)
Three Schemes Compared
| Scheme | Applies from | Rate | Net benefit (25% CT rate) | Who can use |
|---|---|---|---|---|
| Old SME scheme | Pre-Aug 2023 / R&D-intensive only | 86% enhanced deduction | 86% x 25% CT = 21.5% of R&D spend | R&D-intensive SMEs (R&D >= 30% of costs) |
| RDEC (legacy) | Pre-Aug 2023 | 13% above-the-line credit | 13% - (13% x 25%) = 9.75% | Large companies; SMEs with subsidised R&D |
| ERIS standard (merged) | Accounting periods from Aug 2023 | 15% above-the-line credit | 15% - (15% x 25%) = 11.25% | All companies (most claims) |
| ERIS enhanced (R&D-intensive SME) | Accounting periods from Aug 2023 | 20% above-the-line credit | 20% - (20% x 25%) = 15% | Loss-making R&D-intensive SMEs |
Net benefit calculations assume corporation tax at 25% main rate. For companies paying 19% small profits rate (profits under £50,000), adjust accordingly. ERIS credit is taxable above-the-line income.
How the ERIS Merged Scheme Works: Worked Example
A UK technology company (not R&D-intensive) with £500,000 qualifying R&D expenditure claims under ERIS at 15% for its accounting period ending December 2026.
| Step | Calculation | Amount |
|---|---|---|
| Qualifying R&D spend | Given | £500,000 |
| ERIS credit (15%) | 15% x £500,000 | £75,000 |
| ERIS credit is taxable income | Included in taxable profits | +£75,000 to CT base |
| CT on ERIS credit (25%) | 25% x £75,000 | £18,750 |
| Net R&D benefit | £75,000 - £18,750 | £56,250 |
| Effective rate on R&D spend | £56,250 / £500,000 | 11.25% |
Frequently Asked Questions
Frequently Asked Questions
What happened to R&D SME relief and RDEC after August 2023?
From 1 August 2023, most R&D claims use the merged ERIS scheme. The old SME scheme and RDEC were replaced for accounting periods starting on or after that date. Exception: R&D-intensive SMEs (R&D spend at least 30% of total costs) can still use an enhanced version of the old SME scheme at the 20% ERIS rate.
What is the SME enhanced deduction rate in 2026/27?
Under the old SME scheme (now only for R&D-intensive SMEs), the enhanced deduction is 86% -- meaning qualifying expenditure is deducted at 186% for CT purposes. Loss-making SMEs can claim a payable credit at 10% of the surrendered loss. These rates were cut in April 2023 from 130%/14.5%.
What is the ERIS (merged scheme) rate and how does it work?
ERIS gives a 15% above-the-line R&D credit (taxable income) for most businesses, or 20% for R&D-intensive loss-making SMEs. On £100,000 qualifying spend at 15%, the gross credit is £15,000. At 25% CT, the net benefit is £11,250. The credit is above-the-line (visible in P&L), unlike the old SME deduction.
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What is an R&D-intensive SME and why does it matter?
An SME (under 500 employees, turnover under £100m) where qualifying R&D spend is at least 30% of total expenditure. R&D-intensive SMEs qualify for the higher 20% ERIS rate. This particularly benefits start-ups spending most of their budget on R&D.
What costs qualify for R&D tax relief under the merged ERIS scheme?
Qualifying costs: staff costs (salaries, NI, pension for R&D workers); materials and consumables transformed in R&D; clinical trial volunteer payments; software used in R&D; cloud computing and data licences (post-reform). Capital expenditure does not qualify. Overseas subcontracted R&D now only qualifies if the work cannot reasonably be done in the UK.
Do you need to notify HMRC before claiming R&D relief?
Yes. From April 2023, new claimants (and those not claiming for 3+ years) must notify HMRC within 6 months of the accounting period end. All claimants must also submit an Additional Information Form (AIF) before filing the CT return. Missed notification = claim rejected.
Can overseas R&D subcontractors still be included in a UK R&D claim?
Under ERIS, overseas subcontracted R&D only qualifies if it cannot reasonably be done in the UK (e.g. regulatory requirements, unavailable expertise). This is a major tightening vs the old schemes. Companies with large overseas R&D subcontracting arrangements must review eligibility.
How does R&D relief interact with the Patent Box?
R&D relief reduces the cost of developing IP; Patent Box taxes resulting profits at 10% CT. Both can apply to the same company (but not the same expenditure/income simultaneously). Together they can be highly valuable for UK-based innovative businesses with patented products.
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Disclaimer:R&D tax relief is complex and HMRC scrutiny has increased significantly since 2022. This comparison is for general information only. Always work with a specialist R&D tax adviser before submitting a claim -- incorrect claims can result in penalties.