R&D tax credit: 2026/27
R&D Tax Credit Calculator 2026/27: Merged Scheme 20% / ERIS 27%
Complete guide to UK Research and Development tax credits in 2026/27. Merged R&D Scheme (20% above-the-line credit, replaces both SME R&D Tax Relief and old RDEC from April 2024) + Enhanced R&D Intensive Support (ERIS) at 27% effective rate for loss-making SMEs with R&D ≥30% of total spend. New contracting-out rules restrict overseas R&D, mandatory pre-notification within 6 months, Additional Information Form online before claim, 4 worked company profiles, HMRC enforcement crackdown 2023-2026.
2026/27 R&D scheme rates
Merged R&D Scheme (RDEC-style)
20%
All companies regardless of size. Above-the-line credit, taxable. Net benefit ~15-16.2% after CT.
ERIS (R&D Intensive SME)
27%
Loss-making SMEs with R&D ≥30% of total spend. Cash refund.
4 worked company scenarios
| Company | R&D spend | R&D intensity | Scheme | Gross credit | Net cash benefit |
|---|---|---|---|---|---|
| Profitable SaaS - R&D non-intensive R&D 18.75% of total spend - under 30% intensity threshold. Falls under merged scheme RDEC. | £150,000 | 19% | Merged RDEC | £30,000 | £24,300 |
| R&D-intensive deep-tech startup R&D 41.7% of total spend - over 30% threshold. Loss-making. ERIS 27% applies. | £500,000 | 42% | ERIS (R&D Intensive) | £135,000 | £135,000 |
| Mid-size tech company R&D 18.75% of total. Merged RDEC 20% above-the-line credit. | £750,000 | 19% | Merged RDEC | £150,000 | £112,500 |
| Pre-revenue biotech startup R&D 80% of total - solidly ERIS. Loss-making cash claim. Best-case outcome. | £400,000 | 80% | ERIS (R&D Intensive) | £108,000 | £108,000 |
April 2024 scheme reform
Three major changes for accounting periods starting on or after 1 April 2024 (Finance Act 2024):
- Merged R&D Scheme: replaces both the SME R&D Tax Relief (86% enhanced deduction + 14.5% surrender) AND the old RDEC scheme. Single 20% above-the-line credit for all companies regardless of size. Simplifies admin but reduces benefit for previously-eligible profitable SMEs (was 21.5% net, now ~15% net at 25% CT).
- ERIS threshold cut from 40% to 30%: more loss-making SMEs qualify for the preferential 27% rate. Targets the genuine R&D-intensive ecosystem (deep-tech, biotech, climate tech).
- Overseas R&D restriction: subcontracted R&D done outside the UK generally no longer qualifies. Specific ULF (Unavailable Locally to UK) exceptions for genuinely unique overseas resources (e.g. specialised research facilities, environmental conditions). Major impact on UK companies using offshore dev teams.
Mandatory pre-notification - the new #1 pitfall
For accounting periods starting on or after 1 April 2023, first-time claimants (or claimants who haven't claimed in the previous 3 years) MUST pre-notify HMRC of intent to claim within 6 MONTHS of the end of the accounting period. Missing pre-notification = entire claim invalid, regardless of qualifying spend.
Process: online via HMRC's R&D claim notification service. Information required: company UTR, accounting period dates, contact details for the R&D contact, planned advisor (if any), brief description of R&D activities. Filed AFTER the period ends, BEFORE the 6-month deadline. The CT600 + AIF + claim itself can be submitted up to 12 months after period-end (separate deadline). HMRC has rejected ~25% of submitted R&D claims in 2024/25 for pre-notification failures alone. Critical: set calendar reminder for 6 months post period-end. Existing claimants (claimed in any of the previous 3 years) are exempt from pre-notification but still file AIF + CT600.
Frequently asked questions
What R&D tax credit scheme applies in 2026/27?
Two co-existing schemes from accounting periods starting on or after 1 April 2024 (Finance Act 2024). (1) Merged R&D Scheme: 20% RDEC-style above-the-line credit on qualifying R&D spend, available to ALL companies regardless of size, replacing the separate SME R&D Tax Relief and RDEC schemes that existed pre-April 2024. (2) Enhanced R&D Intensive Support (ERIS): special 27% effective rate ONLY for loss-making SMEs where R&D spend is ≥30% of total expenditure (cut from 40% threshold which applied to pre-April-2024 SME-intensive scheme). The pre-2024 enhanced SME deduction (86% uplift + 14.5% surrender rate) no longer applies to new claims, though existing claims for periods starting before 1 April 2024 continue under old rules until their respective periods close.
What is the 20% Merged R&D Scheme rate worth in cash terms?
The 20% RDEC credit is "above-the-line" - it's added to your taxable profit, then Corporation Tax applies. Net benefit varies by company tax position. Profitable company at 25% CT main rate: 20% × (1 - 25%) = 15% of qualifying R&D spend as net cash benefit. £100k of R&D → £15k net benefit. Profitable company at 19% small-profits rate: 20% × (1 - 19%) = 16.2% net. Loss-making company under Merged Scheme (non-intensive): 20% credit, but loss-maker pays "notional tax" of 19% on the credit before HMRC pays out cash. Net cash claim = 20% × 81% = 16.2% of R&D spend. £100k of R&D → £16,200 cash refund. The cash refund route is available to loss-makers only - profitable companies use the credit to offset their CT liability.
What is the ERIS 27% rate and who qualifies?
ERIS (Enhanced R&D Intensive Support) gives loss-making SMEs an effective 27% benefit on qualifying R&D spend, structured as: 86% additional deduction (so £1 of R&D becomes £1.86 deductible) + 14.5% credit on surrendered losses. The arithmetic: 1.86 × 14.5% = 26.97% of qualifying R&D as cash refund. Qualification criteria (ALL must be met): (1) SME size - under 500 employees AND under €100m turnover OR under €86m balance sheet (Section 1119 CTA 2009 definition); (2) loss-making for the accounting period (so the surrender mechanism is needed); (3) R&D INTENSITY ratio: qualifying R&D spend ≥ 30% of total expenditure for the period (cut from 40% threshold in April 2024). Pre-April-2023 the threshold was 40%; for periods 1 April 2023 - 31 March 2024 it was 40%; from 1 April 2024 onwards it's 30%. The intensity test means software / biotech / deep-tech startups with lots of R&D salaries and little else qualify; mature companies with diversified spend rarely do.
What counts as "qualifying R&D" expenditure?
BEIS Guidelines (replaced by DSIT Guidelines March 2023) define R&D as activities that "seek to achieve an advance in science or technology" + "resolve scientific or technological uncertainty". Qualifying spend (Section 1133-1142 CTA 2009): Staff costs: salary, employer NI, employer pension contributions, bonuses for staff directly engaged in R&D activities. Most-claimed category. Externally Provided Workers (EPWs): contractor staff supplied by a connected agency, 65% of cost qualifies (down from 100% pre-1 April 2024 for non-connected EPWs). Subcontracted R&D: 65% of cost paid to a subcontractor doing R&D for you. Restricted further from April 2024 when "principal-led" rules apply - subcontracted R&D can only be claimed by the company directing the R&D, not the subcontractor doing the work. Software and consumables: software licences used in R&D, consumed materials. Utilities: power / water consumed by R&D equipment. NOT qualifying: capital expenditure (separate Research and Development Allowance Section 437 CAA 2001), market research, routine testing of existing products, aesthetic design without scientific advance.
What are the new contracting-out rules from April 2024?
Major restructure of who can claim under what circumstances (FA 2024 reform). Pre-April-2024: both the company doing R&D and the company commissioning R&D could potentially claim under different schemes. From 1 April 2024: only the "decision-maker" - the company that took the COMMERCIAL DECISION to do the R&D - can claim. The subcontractor doing the actual work cannot claim (unless they're separately doing their own R&D). Test of "decision-maker": who determined the R&D project's scope, methodology, and commercial purpose? If you contract a UK lab to "develop a new drug" and you direct the scientific objectives → you claim. If the lab independently determines the research direction → lab claims. Overseas R&D restriction: from 1 April 2024 R&D contracted out to overseas suppliers is generally NOT qualifying expenditure (specific exceptions for ULF - Unavailable Locally to UK - cases like specialised facilities not available in UK, environmental conditions unique to overseas locations). Pre-April-2024 overseas R&D was eligible regardless. Major impact on UK companies using offshore dev teams.
How do I make the R&D claim?
Three steps + new pre-notification requirement. (1) Pre-notification (mandatory for accounting periods starting on or after 1 April 2023, applies to first-time claimants and those who haven't claimed in the previous 3 years): notify HMRC of intent to claim WITHIN 6 MONTHS of the end of the accounting period. Form: online via HMRC Government Gateway. Missing this deadline = cannot claim for that period. Critical pitfall - HMRC has rejected thousands of claims for missing pre-notification. (2) Additional Information Form (AIF): mandatory since 1 August 2023, must be submitted ONLINE before the CT600 claim. Includes: contact details, technological advance description, qualifying activities + costs, R&D intensity calculation if claiming ERIS. (3) CT600 corporation tax return: filed within 12 months of accounting period end, with R&D enhanced deduction or credit applied. HMRC has 9 months from receipt to enquire into the claim (Section 248 FA 2004). Refund typically arrives 8-12 weeks after submission if no enquiry.
What recent enforcement and compliance changes?
HMRC has dramatically tightened R&D enforcement since 2022. (1) Specialist R&D Compliance Teams: HMRC dedicated team of 350+ staff (up from ~100 pre-2022) focused on R&D claims. (2) Mandatory advisor naming: from August 2023 the AIF must name the advisor who prepared the claim, identifying repeat offenders. (3) "Spurious claims" crackdown: HMRC challenges claims it views as outside the spirit of R&D legislation - common challenge areas include software development that's "routine" rather than advancing technology, "research into business processes" not qualifying as scientific R&D, and SMEs claiming for activities a competent professional could readily do. (4) Penalty regime: up to 100% of the over-claimed credit for deliberate overstating, 30-70% for careless errors. The "compensating adjustment" provision allows HMRC to require repayment of credits already paid out years later (typical 1-4 year claw-back window). (5) Senior Officer Notice (SAO): large companies must have a senior officer sign off on R&D claims, with personal financial penalty up to £5,000 for inaccurate sign-off.
Can my startup claim if we have no revenue?
Yes - and pre-revenue startups are often the BEST positioned for R&D credits. Loss-making companies can claim the credit as CASH REFUND from HMRC, providing real working capital. Worked example: pre-revenue biotech with £400k of R&D salaries / contractor costs in year 1. Total expenditure £500k (R&D 80% of spend = ERIS qualifies). ERIS 27% rate = £108k cash refund from HMRC. The cash arrives 8-12 weeks after CT600 filing. Critical for runway extension. The cash refund is non-taxable and counts as "miscellaneous income" but generally doesn't impact other corporation tax positions. Some VCs treat the R&D refund as "free capital" and structure deal terms accordingly. Constraints for startups: must be UK-resident corporate entity (no LLPs, no overseas companies). Trading must commence to claim (pre-trading R&D can be carried forward and claimed in the first trading period if intended trade is the same as the R&D). Convertible loan notes / SAFEs don't disqualify but can complicate the accounting period definition.
Are software development costs qualifying R&D?
Sometimes - specifically only when the development INVOLVES scientific or technological advance + resolves uncertainty. Qualifying software R&D: developing a new ML model architecture, optimising algorithms beyond known approaches, novel database engineering, building a real-time data processing system facing unknown technical challenges, creating new cryptographic protocols. NOT qualifying: building a standard CRUD app, applying well-known libraries / frameworks, "configuring existing software" for a specific business use, web development with off-the-shelf components, integrating known APIs. HMRC's typical pushback on software claims: "would a competent professional readily achieve this?" If the answer is yes - not R&D. The advance must be in technology / science generally, not just for your particular business. SaaS startups often face HMRC challenges on claims where the R&D narrative says "advance" but the work is actually integration / customisation. Stronger claims show: failed approaches attempted, technical hypotheses tested, peer-recognised advance. The DSIT Guidelines March 2023 specifically narrowed software R&D qualification - many pre-2023 claims would not qualify under current rules.
What is the cap on R&D claims?
Cap introduced from April 2021 (Section 1058A CTA 2009) to combat fraud. The maximum payable R&D credit is £20,000 plus 300% of the claimant company's PAYE/NIC liability for the period. Worked example: company with £50k of PAYE/NIC for the year can claim cash credit up to £20,000 + (3 × £50,000) = £170,000. A company with zero employees (e.g. director-only with no PAYE because salary below NI threshold) can only claim up to £20,000. Designed to prevent shell companies with no real UK employees from extracting cash. Exemption: companies that create or actively manage intellectual property AND ≥15% of expenditure is in-house can disapply the cap. The cap mainly affects: companies using all-contractor R&D structures, foreign-parent UK subs without UK employees, single-director consultancies, fraud / abuse cases. Most genuine UK-staffed R&D claimants don't approach the cap because their PAYE liability scales with their R&D headcount.
How long does an R&D claim take and what are the typical issues?
Timeline: pre-notification (within 6 months of period end) → AIF submission → CT600 with claim filed (within 12 months of period end) → HMRC processing (8-12 weeks typically; up to 6 months if enquiry opened) → cash refund or CT offset. Common issues: (1) Insufficient technical narrative - HMRC rejects ~30% of claims on technical grounds, often because the project description fails to articulate the technological advance. Use IP / patents / academic citations to strengthen. (2) Cost categorisation errors - claiming non-R&D staff time, capital costs, ineligible subcontractor costs (overseas without ULF exemption). (3) Connected-party transactions - between group companies, must use market rates and have documented evidence. (4) Insufficient time records - HMRC wants per-employee time allocation between R&D vs non-R&D activities. (5) Pre-notification missed - now the #1 reason for outright rejection. (6) R&D vs commissioned-by-customer dispute - if your customer paid you to deliver a specific outcome, HMRC may argue that's "subsidised R&D" not your own claim. (7) Advisor over-promising - some R&D consultancies push aggressive claims that get rejected and trigger penalty regime.
What advisors should I use for R&D claims?
Professional advisor categories. Big 4 accountants: Deloitte, PwC, EY, KPMG. Highest quality, conservative claims, fees typically 15-25% of credit value. Best for complex claims £500k+. Mid-tier accountants: BDO, Grant Thornton, RSM, Mazars. Solid quality, 15-20% fees. Specialist R&D consultancies: GovGrant, Catax, Visiativ Innovation Tax Consultants. Variable quality, 25-35% contingent fees. Some excellent, some aggressive. Check track record and HMRC dispute history. Generalist accountants: typical small business accountant claiming R&D for their client portfolio. Lower fees (£5-15k flat) but variable quality. Often miss qualifying activities or claim non-qualifying ones. DIY claim: possible for technically savvy founders, particularly for early-stage software / biotech. HMRC's CIRD80000+ manual is the technical reference. Risk: missing pre-notification or AIF requirements voids the claim entirely. Red flags in advisor selection: contingent-only fee structure with no cap (encourages aggressive claims), no professional indemnity insurance, refusal to disclose previous HMRC enquiry rate, "guaranteed" 100% claim approval rate.
Related calculators and guides
- R&D tax credit guide - narrative deep-dive on merged scheme + ERIS.
- Corporation Tax calculator - the underlying CT bill that R&D credits offset.
- SEIS & EIS guide - investor-side relief on early-stage equity investment.
- EIS / SEIS relief calculator - 30% / 50% upfront IT relief.
- AIA calculator - £1m Annual Investment Allowance for capital equipment.
- Capital allowances calculator - separate from R&D for non-R&D plant + machinery.
- Employee share schemes - EMI for R&D-intensive startup teams.
- Optimum director salary 2026/27 - PAYE bill that supports R&D cap calculation.