R&D Tax Rates & How To Calculate R&D Tax Credits

If you’re an SME, it’s essential to understand which scheme you are eligible for: merged or Enhanced R&D Intensive Support (ERIS) – our Essential Read on ERIS will help.

R&D merged scheme rates

While there are key changes related to contracting out rules and overseas expenditure under the merged scheme, rates are very consistent regardless of the type and size of the company. They vary only from around 15% to 16%.

In short, if your company is liable to Corporation Tax at the main rate of 25%, then the benefit rate of your R&D claim would be 15%.

Alternatively, if your company is eligible for the small profits rate of 19%, then your benefit rate would be up to 16.2%. The examples below show how this works in practice.

How to calculate a merged scheme R&D claim

All companies, regardless of size (with the exception of R&D intensive SMEs) will receive an above the line credit under the merged scheme. This is referred to as an R&D expenditure credit (RDEC). The current RDEC rate is 20%, meaning the credit you receive will be 20% of your identified R&D expenditure.

While the RDEC acts to increase profits in the first instance, it can subsequently be offset against the company’s Corporation Tax liability. In some cases, where all corporation tax liabilities are discharged, the remainder of the RDEC may be paid in cash to your business.

Example merged scheme claim calculation

Example 1:

The following illustration shows how the benefit would be calculated for a company paying Corporation Tax at the main rate, based on £1,000,000 of qualifying R&D expenditure, which would generate an RDEC of £200,000.

Pre-RDEC profits	£800,000
CT liability		£200,000
Add taxable RDEC	£200,000
Post-RDEC profits	£1,000,0000
CT liability		£250,000
Discharge RDEC		-£200,000
Revised CT liability		£50,000

As mentioned, since the RDEC is taxable, the first impact is to increase profits. However, it can then be used to lower the resulting Corporation Tax liability. The difference between the original liability and the final liability is £150,000 – this is the benefit, which is 15% of the R&D expenditure identified.

Example 2:

The following illustration shows how the benefit would be calculated for a loss-making company, based on £1,000,000 of qualifying R&D expenditure, which would generate an RDEC of £200,000.

Pre-RDEC loss	-£500,000
CT liability
Add taxable RDEC	£200,000
Post-RDEC loss	-£300,000
CT liability
Discharge RDEC
Payable credit		£162,000

There are no profits to discharge the RDEC against, but the company is entitled to a payable credit instead (assuming no adjustments at steps 3-6 of the RDEC calculation). A ‘notional tax’ is applied such that the cash benefit is equal to the RDEC, net of tax. The tax rate here is 19%, resulting in the credit being capped at £162,000. The difference (£38,000), can be surrendered to a group company or carried forward. The £162,000 of cash is the benefit here (this, over the R&D expenditure of £1,000,000, gives you the 16.2% benefit rate).

ERIS rates

Loss-making SMEs that meet the R&D intensity threshold of 30% (spending 30% or more of total business expenditure on R&D) are eligible for higher rates of relief than companies claiming under the merged scheme. With ERIS, the effective rate of relief is up to 27%.

How to calculate an ERIS claim

In the year ending 31 March 2025, an SME business spends £500k on R&D, has a total business expenditure of £1 million and makes a taxable loss of £750k before claiming R&D tax relief.

To reward businesses for their investment, the government allows you to enhance your qualifying expenditure. You may then surrender losses up to the value of your enhanced R&D expenditure for a payable tax credit.

As the company has spent more than 30% of its total business expenditure on R&D, it meets the R&D intensity threshold.

The company has made a loss in the period and is therefore potentially eligible for a payable tax credit. The maximum a company can surrender for a credit is the lower of a) the amount of trading loss in the year which is unrelieved, and b) 186% of the R&D expenditure (“the enhanced expenditure”).

ERIS calculation example

£500,000 (R&D expenditure) x 86% (enhancement rate) = £430,000
£500,000 (R&D expenditure) + £430,000 (enhancement) = £930,000 (enhanced expenditure)
£750,000 (pre-R&D tax loss) + £430,000 (enhancement) = £1,180,000 (total loss available to surrender)
£930,000 (lower of enhanced expenditure and total loss available to surrender) x 14.5% (surrender rate) = £134,850
£134,850 (credit) / £500,000 (R&D expenditure) = 27% (effective benefit)

Find out more about the enhanced rate for R&D intensive SMEs.

How to calculate R&D tax credits

In the above sections, we’ve shared specific R&D rates and example R&D claim calculations so you can estimate your own claim values and understand the process. Those looking to get a quick indication of future benefit under the relevant scheme should use our R&D calculator.

R&D tax credit calculator

A calculator cannot accurately assess the value of your claim. Our tool instead provides an indication of how your future benefit could vary under the merged and R&D intensive SME schemes.

It covers accounting periods that fall under the merged scheme – those ending on 31 March 2025 and beyond.

Although it’s a useful indicator for businesses planning R&D investment, our calculator is no replacement for advice from our expert team. Get in touch below to find out more.

SME

Businesses with fewer than 500 staff and either: a turnover of no more than €100m; or gross assets of no more than €86m.

Companies of all sizes come under a merged R&D tax relief scheme for accounting periods beginning on or after 1 April 2024, with the exception of loss-making SMEs whose qualifying R&D costs make up 30% or more of total business expenditure.

Profit making
- £50,000 spend
  
  Do you know what costs qualify for R&D tax relief? What costs qualify for R&D tax relief?
  
  We estimate you could receive up to £ 7500 as a tax credit
  
  To reward businesses for their investment, the government allows you to enhance your qualifying expenditure.
  
  £50,000 x 20% (above the line credit) = £10,000
  
  After applying 25% (Corporation Tax rate) = £7,500
  
  £7,500 / £50,000 = 15% (effective rate)
  
  Please note that there are seven steps in calculating the payable merged scheme credit. The second step of the process will be impacted by the company’s taxable profit position prior to the R&D claim. For a company with taxable profits in excess of £50,000 the relevant Corporation Tax rate is 25%, for any company in a loss-making position or with taxable profits less than £50,000 the relevant Corporation Tax rate is 19%. This important difference will have an impact on the effective rate a company will be eligible to receive.
- £250,000 spend
  
  Do you know what costs qualify for R&D tax relief? Find out more
  
  We estimate you could receive up to £ 37500 as a tax credit
  
  To reward businesses for their investment, the government allows you to enhance your qualifying expenditure.
  
  £250,000 x 20% (above the line credit) = £50,000
  
  After applying 25% (Corporation Tax rate) = £37,500
  
  £37,500 / £250,000 = 15% (effective rate)
  
  Please note that there are seven steps in calculating the payable merged scheme credit. The second step of the process will be impacted by the company’s taxable profit position prior to the R&D claim. For a company with taxable profits in excess of £50,000 the relevant Corporation Tax rate is 25%, for any company in a loss-making position or with taxable profits less than £50,000 the relevant Corporation Tax rate is 19%. This important difference will have an impact on the effective rate a company will be eligible to receive.
- £500,000 spend
  
  Do you know what costs qualify for R&D tax relief? How do you identify how much R&D each staff member does?
  
  We estimate you could receive up to £ 75000 as a tax credit
  
  To reward businesses for their investment, the government allows you to enhance your qualifying expenditure.
  
  £500,000 x 20% (above the line credit) = £100,000
  
  After applying 25% (Corporation Tax rate) = £75,000
  
  £75,000 / £500,000 = 15% (effective rate)
  
  Please note that there are seven steps in calculating the payable merged scheme credit. The second step of the process will be impacted by the company’s taxable profit position prior to the R&D claim. For a company with taxable profits in excess of £50,000 the relevant Corporation Tax rate is 25%, for any company in a loss-making position or with taxable profits less than £50,000 the relevant Corporation Tax rate is 19%. This important difference will have an impact on the effective rate a company will be eligible to receive.
- £1,000,000 spend
  
  Do you know what costs qualify for R&D tax relief? How do you identify how much R&D each staff member does?
  
  We estimate you could receive up to £ 150000 as a tax credit
  
  To reward businesses for their investment, the government allows you to enhance your qualifying expenditure.
  
  £1,000,000 x 20% (above the line credit) = £200,000
  
  After applying 25% (Corporation Tax rate) = £150,000
  
  £150,000 / £1,000,000 = 15% (effective rate)
  
  Please note that there are seven steps in calculating the payable merged scheme credit. The second step of the process will be impacted by the company’s taxable profit position prior to the R&D claim. For a company with taxable profits in excess of £50,000 the relevant Corporation Tax rate is 25%, for any company in a loss-making position or with taxable profits less than £50,000 the relevant Corporation Tax rate is 19%. This important difference will have an impact on the effective rate a company will be eligible to receive.
Loss making
- £50,000 spend
  - £50,000 total expenditure
    
    Do you know how much you can claim for your subcontractors? Can I claim R&D tax relief on subcontractors?
    
    We estimate you could receive up to £ 13485 as a tax credit
    
    Alongside the merged scheme, the enhanced rate for R&D intensive loss-making SMEs (introduced in April 2023) continues to operate under the previous SME model. For accounting periods beginning on or after 1 April 2024, businesses spending 30% or more of overall business expenditure on R&D qualify for an enhanced rate.
    
    £50,000 x 86% (enhancement rate) = £43,000
    
    £50,000 + £43,000 (enhancement) = £93,000 (enhanced expenditure)
    
    £93,000 x 14.5% (surrender rate) = £13,485
    
    £13,485 / £50,000 = 27%
    
    This calculation assumes total losses post your R&D claim exceed the enhanced expenditure calculated. If this is not the case the 14.5% must be applied to your lower total loss figure.
  - £50,000 spend
    
    £100,000 total expenditure
    
    Do you know what costs qualify for R&D tax relief? Find out more
    
    We estimate you could receive up to £ 13485 as a tax credit
    
    Alongside the merged scheme, the enhanced rate for R&D intensive loss-making SMEs (introduced in April 2023) continues to operate under the previous SME model. For accounting periods beginning on or after 1 April 2024, businesses spending 30% or more of overall business expenditure on R&D qualify for an enhanced rate.
    
    £50,000 x 86% (enhancement rate) = £43,000
    
    £50,000 + £43,000 (enhancement) = £93,000 (enhanced expenditure)
    
    £93,000 x 14.5% (surrender rate) = £13,485
    
    £13,485 / £50,000 = 27%
    
    This calculation assumes total losses post your R&D claim exceed the enhanced expenditure calculated. If this is not the case the 14.5% must be applied to your lower total loss figure.
  - £50,000 spend
    
    £250,000 total expenditure
    
    Do you know what costs qualify for R&D tax relief? What costs qualify for R&D tax relief?
    
    We estimate you could receive up to £ 8100 as a tax credit
    
    To reward businesses for their investment, the government allows you to enhance your qualifying expenditure. You may then surrender losses up to the value of your enhanced R&D expenditure for a payable tax credit.
    
    £50,000 x 20% (above the line credit) = £10,000
    
    After applying 19% (Corporation Tax rate) = £8,100
    
    £8,100 / £50,000 = 16.2% (effective rate)
    
    Please note that there are seven steps in calculating the payable merged scheme credit. The second step of the process will be impacted by the company’s taxable profit position prior to the R&D claim. For a company with taxable profits in excess of £50,000 the relevant Corporation Tax rate is 25%, for any company in a loss-making position or with taxable profits less than £50,000 the relevant Corporation Tax rate is 19%. This important difference will have an impact on the effective rate a company will be eligible to receive.
  - £50,000 spend
    
    £500,000 total expenditure
    
    Do you know what costs qualify for R&D tax relief? How do you identify how much R&D each staff member does?
    
    We estimate you could receive up to £ 8100 as a tax credit
    
    To reward businesses for their investment, the government allows you to enhance your qualifying expenditure. You may then surrender losses up to the value of your enhanced R&D expenditure for a payable tax credit.
    
    £50,000 x 20% (above the line credit) = £10,000
    
    After applying 19% (Corporation Tax rate) = £8,100
    
    £8,100 / £50,000 = 16.2% (effective rate)
    
    Please note that there are seven steps in calculating the payable merged scheme credit. The second step of the process will be impacted by the company’s taxable profit position prior to the R&D claim. For a company with taxable profits in excess of £50,000 the relevant Corporation Tax rate is 25%, for any company in a loss-making position or with taxable profits less than £50,000 the relevant Corporation Tax rate is 19%. This important difference will have an impact on the effective rate a company will be eligible to receive.
- £250,000 spend
  - £250,000 total expenditure
    
    Get in touch to find out how to calculate your total business expenditure.
    
    We estimate you could receive up to £ 67425 as a tax credit
    
    Alongside the merged scheme, the enhanced rate for R&D intensive loss-making SMEs (introduced in April 2023) continues to operate under the previous SME model. For accounting periods beginning on or after 1 April 2024, businesses spending 30% or more of overall business expenditure on R&D qualify for an enhanced rate.
    
    £250,000 x 86% (enhancement rate) = £215,000
    
    £250,000 + £215,000 (enhancement) = £465,000 (enhanced expenditure)
    
    £465,000 x 14.5% (surrender rate) = £67,425
    
    £67,425 / £250,000 = 27%
    
    This calculation assumes total losses post your R&D claim exceed the enhanced expenditure calculated. If this is not the case the 14.5% must be applied to your lower total loss figure.
  - £250,000 spend
    
    £500,000 total expenditure
    
    Get in touch to find out how to calculate your total business expenditure.
    
    We estimate you could receive up to £ 67425 as a tax credit
    
    Alongside the merged scheme, the enhanced rate for R&D intensive loss-making SMEs (introduced in April 2023) continues to operate under the previous SME model. For accounting periods beginning on or after 1 April 2024, businesses spending 30% or more of overall business expenditure on R&D qualify for an enhanced rate.
    
    £250,000 x 86% (enhancement rate) = £215,000
    
    £250,000 + £215,000 (enhancement) = £465,000 (enhanced expenditure)
    
    £465,000 x 14.5% (surrender rate) = £67,425
    
    £67,425 / £250,000 = 27%
    
    This calculation assumes total losses post your R&D claim exceed the enhanced expenditure calculated. If this is not the case the 14.5% must be applied to your lower total loss figure.
  - £250,000 spend
    
    £1,000,000 total expenditure
    
    Get in touch to find out how to calculate your total business expenditure.
    
    We estimate you could receive up to £ 40500 as a tax credit
    
    To reward businesses for their investment, the government allows you to enhance your qualifying expenditure. You may then surrender losses up to the value of your enhanced R&D expenditure for a payable tax credit.
    
    £250,000 x 20% (above the line credit) = £50,000
    
    After applying 19% (Corporation Tax rate) = £40,500
    
    £40,500 / £250,000 = 16.2% (effective rate)
    
    Please note that there are seven steps in calculating the payable merged scheme credit. The second step of the process will be impacted by the company’s taxable profit position prior to the R&D claim. For a company with taxable profits in excess of £50,000 the relevant Corporation Tax rate is 25%, for any company in a loss-making position or with taxable profits less than £50,000 the relevant Corporation Tax rate is 19%. This important difference will have an impact on the effective rate a company will be eligible to receive.
  - £250,000 spend
    
    £2,500,000 total expenditure
    
    Get in touch to find out how to calculate your total business expenditure.
    
    We estimate you could receive up to £ 40500 as a tax credit
    
    To reward businesses for their investment, the government allows you to enhance your qualifying expenditure. You may then surrender losses up to the value of your enhanced R&D expenditure for a payable tax credit.
    
    £250,000 x 20% (above the line credit) = £50,000
    
    After applying 19% (Corporation Tax rate) = £40,500
    
    £40,500 / £250,000 = 16.2% (effective rate)
    
    Please note that there are seven steps in calculating the payable merged scheme credit. The second step of the process will be impacted by the company’s taxable profit position prior to the R&D claim. For a company with taxable profits in excess of £50,000 the relevant Corporation Tax rate is 25%, for any company in a loss-making position or with taxable profits less than £50,000 the relevant Corporation Tax rate is 19%. This important difference will have an impact on the effective rate a company will be eligible to receive.
- £500,000 spend
  - £500,000 total expenditure
    
    Get in touch to find out how to calculate your total business expenditure.
    
    We estimate you could receive up to £ 134850 as a tax credit
    
    Alongside the merged scheme, the enhanced rate for R&D intensive loss-making SMEs (introduced in April 2023) continues to operate under the previous SME model. For accounting periods beginning on or after 1 April 2024, businesses spending 30% or more of overall business expenditure on R&D qualify for an enhanced rate.
    
    £500,000 x 86% (enhancement rate) = £430,000
    
    £500,000 + £430,000 (enhancement) = £930,000 (enhanced expenditure)
    
    £930,000 x 14.5% (surrender rate) = £134,850
    
    £134,850 / £500,000 = 27%
    
    This calculation assumes total losses post your R&D claim exceed the enhanced expenditure calculated. If this is not the case the 14.5% must be applied to your lower total loss figure.
  - £500,000 spend
    
    £1,000,000 total expenditure
    
    Get in touch to find out how to calculate your total business expenditure.
    
    We estimate you could receive up to £ 134850 as a tax credit
    
    Alongside the merged scheme, the enhanced rate for R&D intensive loss-making SMEs (introduced in April 2023) continues to operate under the previous SME model. For accounting periods beginning on or after 1 April 2024, businesses spending 30% or more of overall business expenditure on R&D qualify for an enhanced rate.
    
    £500,000 x 86% (enhancement rate) = £430,000
    
    £500,000 + £430,000 (enhancement) = £930,000 (enhanced expenditure)
    
    £930,000 x 14.5% (surrender rate) = £134,850
    
    £134,850 / £500,000 = 27%
    
    This calculation assumes total losses post your R&D claim exceed the enhanced expenditure calculated. If this is not the case the 14.5% must be applied to your lower total loss figure.
  - £500,000 spend
    
    £2,500,000 total expenditure
    
    Get in touch to find out how to calculate your total business expenditure.
    
    We estimate you could receive up to £ 81000 as a tax credit
    
    To reward businesses for their investment, the government allows you to enhance your qualifying expenditure. You may then surrender losses up to the value of your enhanced R&D expenditure for a payable tax credit.
    
    £500,000 x 20% (above the line credit) = £100,000
    
    After applying 19% (Corporation Tax rate) = £81,000
    
    £81,000 / £500,000 = 16.2% (effective rate)
    
    Please note that there are seven steps in calculating the payable merged scheme credit. The second step of the process will be impacted by the company’s taxable profit position prior to the R&D claim. For a company with taxable profits in excess of £50,000 the relevant Corporation Tax rate is 25%, for any company in a loss-making position or with taxable profits less than £50,000 the relevant Corporation Tax rate is 19%. This important difference will have an impact on the effective rate a company will be eligible to receive.
  - £500,000 spend
    
    £5,000,000 total expenditure
    
    Get in touch to find out how to calculate your total business expenditure.
    
    We estimate you could receive up to £ 81000 as a tax credit
    
    To reward businesses for their investment, the government allows you to enhance your qualifying expenditure. You may then surrender losses up to the value of your enhanced R&D expenditure for a payable tax credit.
    
    £500,000 x 20% (above the line credit) = £100,000
    
    After applying 19% (Corporation Tax rate) = £81,000
    
    £81,000 / £500,000 = 16.2% (effective rate)
    
    Please note that there are seven steps in calculating the payable merged scheme credit. The second step of the process will be impacted by the company’s taxable profit position prior to the R&D claim. For a company with taxable profits in excess of £50,000 the relevant Corporation Tax rate is 25%, for any company in a loss-making position or with taxable profits less than £50,000 the relevant Corporation Tax rate is 19%. This important difference will have an impact on the effective rate a company will be eligible to receive.
- £1,000,000 spend
  - £1,000,000 total expenditure
    
    Get in touch to find out how to calculate your total business expenditure.
    
    We estimate you could receive up to £ 269700 as a tax credit
    
    Alongside the merged scheme, the enhanced rate for R&D intensive loss-making SMEs (introduced in April 2023) continues to operate under the previous SME model. For accounting periods beginning on or after 1 April 2024, businesses spending 30% or more of overall business expenditure on R&D qualify for an enhanced rate.
    
    £1,000,000 x 86% (enhancement rate) = £860,000
    
    £1,000,000 + £860,000 (enhancement) = £1,860,000 (enhanced expenditure)
    
    £1,860,000 x 14.5% (surrender rate) = £269,700
    
    £269,700 / £1,000,000 = 27%
    
    This calculation assumes total losses post your R&D claim exceed the enhanced expenditure calculated. If this is not the case the 14.5% must be applied to your lower total loss figure.
  - £1,000,000 spend
    
    £2,500,000 total expenditure
    
    Get in touch to find out how to calculate your total business expenditure.
    
    We estimate you could receive up to £ 269700 as a tax credit
    
    Alongside the merged scheme, the enhanced rate for R&D intensive loss-making SMEs (introduced in April 2023) continues to operate under the previous SME model. For accounting periods beginning on or after 1 April 2024, businesses spending 30% or more of overall business expenditure on R&D qualify for an enhanced rate.
    
    £1,000,000 x 86% (enhancement rate) = £860,000
    
    £1,000,000 + £860,000 (enhancement) = £1,860,000 (enhanced expenditure)
    
    £1,860,000 x 14.5% (surrender rate) = £269,700
    
    £269,700 / £1,000,000 = 27%
    
    This calculation assumes total losses post your R&D claim exceed the enhanced expenditure calculated. If this is not the case the 14.5% must be applied to your lower total loss figure.
  - £1,000,000 spend
    
    £5,000,000 total expenditure
    
    Get in touch to find out how to calculate your total business expenditure.
    
    We estimate you could receive up to £ 162000 as a tax credit
    
    To reward businesses for their investment, the government allows you to enhance your qualifying expenditure. You may then surrender losses up to the value of your enhanced R&D expenditure for a payable tax credit.
    
    £1,000,000 x 20% (above the line credit) = £200,000
    
    After applying 19% (Corporation Tax rate) = £162,000
    
    £162,000 / £1,000,000 = 16.2% (effective rate)
    
    Please note that there are seven steps in calculating the payable merged scheme credit. The second step of the process will be impacted by the company’s taxable profit position prior to the R&D claim. For a company with taxable profits in excess of £50,000 the relevant Corporation Tax rate is 25%, for any company in a loss-making position or with taxable profits less than £50,000 the relevant Corporation Tax rate is 19%. This important difference will have an impact on the effective rate a company will be eligible to receive.
  - £1,000,000 spend
    
    £10,000,000 total expenditure
    
    Get in touch to find out how to calculate your total business expenditure.
    
    We estimate you could receive up to £ 162000 as a tax credit
    
    To reward businesses for their investment, the government allows you to enhance your qualifying expenditure. You may then surrender losses up to the value of your enhanced R&D expenditure for a payable tax credit.
    
    £1,000,000 x 20% (above the line credit) = £200,000
    
    After applying 19% (Corporation Tax rate) = £162,000
    
    £162,000 / £1,000,000 = 16.2% (effective rate)
    
    Please note that there are seven steps in calculating the payable merged scheme credit. The second step of the process will be impacted by the company’s taxable profit position prior to the R&D claim. For a company with taxable profits in excess of £50,000 the relevant Corporation Tax rate is 25%, for any company in a loss-making position or with taxable profits less than £50,000 the relevant Corporation Tax rate is 19%. This important difference will have an impact on the effective rate a company will be eligible to receive.

Large company

Businesses with 500 or more staff, or with more than €100m turnover and €86m gross assets.

R&D tax credit rates prior to April 2024

Businesses looking to claim R&D tax relief for accounting periods prior to April 2024 will need to understand the R&D tax credit rates under the old SME and RDEC incentives.

	SME R&D tax incentive		RDEC
Company type	Pre 1 April 2023	Post 1 April 2023	Pre 1 April 2023	Post 1 April 2023
Loss-making SME	Up to 33.35%	Up to 18.6%	10.5%	15%
Profit-making SME	Up to 24.7%	Up to 21.5%	10.5%	Up to 16.2%
R&D intensive SME		Up to 27%
Large company			10.5%	Up to 16.2%

SME rates

Who: SMEs, i.e. those businesses with fewer than 500 staff and either: a turnover of no more than €100 million; or gross assets of no more than €86 million. If a business has fewer than 500 staff, but it exceeds both the turnover and gross asset thresholds, it is not considered an SME.
Find out more about SMEs and R&D tax relief.

Rates:

	SME R&D tax incentive
Company type	Before 1 April 2023	After 1 April 2023
Loss-making SME	Up to 33.35%	Up to 18.6%
Profit-making SME	Up to 24.7%	Up to 21.5%
R&D intensive SME		Up to 27%

Between 1 April 2023 – 31 March 2024

The research and development (R&D) tax credit scheme for SMEs offers a benefit of up to 27% from 1 April 2023 – the equivalent of up to 27p for every £1 spent on qualifying expenditure.

For profit-making SMEs, R&D tax relief reduces your Corporation Tax bill. The rate of relief is up to 21.5%.

Loss-making SMEs (that are not R&D intensive) can claim a payable credit at a slightly lower rate of 10%. You’ll typically receive R&D relief in the form of a cash credit because you don’t have a tax liability to offset. The rate of relief is up to 18.6%.

R&D intensive SMEs (companies who spend at least 40% of their total expenditure on qualifying R&D) can claim a credit at the pre-1 April 2023 rate of 14.5%. The rate of relief is up to 27%.

Need to know: the rate of relief varies based on the company’s tax position. The SME R&D tax credit incentive works by giving companies an additional deduction in their tax computation, either reducing profits or increasing losses. For profit-making companies, this means that if you pay Corporation Tax at the main rate of 25%, then the additional deduction is more valuable than if you are paying Corporation Tax at the small profits rate of 19%.

Calculation example:

The below example assumes £200,000 of qualifying R&D expenditure, which would result in an additional deduction of £172,000.

Pre-R&D profits	£1,000,000
CT liability		£250,000
Additional deduction	(£172,000)
Post-R&D profits	£828,000
Revised CT liability		£207,000

The company’s tax liability has been reduced by £43,000 (this, over the R&D expenditure of £200,000, gives you the benefit rate of 21.5%).

RDEC Rates

Who: primarily large companies (businesses with 500 or more employees, or with more than €100m turnover and €86m gross assets). SMEs that can’t use the SME incentive due to restrictions around grant-funded projects.

Rates:

Before 1 April 2023
The RDEC rate prior to April 1st 2023 was 13% with an effective rate of 10.53%.

From 1 April 2023 – 31 March 2024
From 1 April 2023, the government increased the RDEC rate from 13% to 20% (same whether you’re profit or loss making). This generates a taxable above-the-line credit of 20% of your identified R&D costs. As this is taxable, it results in a net benefit of up to 16.2% after tax.

Need to know: It is paid out in the form of a taxable credit of 20% of your identified qualifying expenditure. As the credit is taxable, it results in a cash benefit of 15% after tax. There is a fixed offset procedure for the credit. It is calculated as a deduction from your tax bill, or if there is no tax payable, the net amount can be claimed as cash. The effective (net) benefit will depend on the company’s marginal rate of Corporation Tax.

Calculation example:

A company spending £1m on R&D and claiming RDEC, receives a gross credit of £200k. If tax is applied to this credit at 25%, the company will actually receive a benefit of £150k, equating to an effective rate of 15% of its R&D expenditure.

*Effective rate – the rate at which a company will benefit from the R&D incentive when taking into account tax savings from R&D enhancements, rates of credit available and tax payable.

**For accounting periods starting on or after 1 April 2024, the R&D intensive threshold falls from 40% to 30%.

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If your business is planning R&D investment and wants to understand the potential value, then speak to our expert team.

R&D tax rates & how to calculate an R&D claim

R&D merged scheme rates

How to calculate a merged scheme R&D claim

Example merged scheme claim calculation

Example 1:

Example 2:

ERIS rates

How to calculate an ERIS claim

ERIS calculation example

How to calculate R&D tax credits

R&D tax credit calculator

1 Who are you

SME

Large company

2 What is the financial position of your company

3 What is your estimated spend on R&D per year?

3 What is your estimated spend on R&D per year?

4 What is your estimated total business expenditure per year?

4 What is your estimated total business expenditure per year?

4 What is your estimated total business expenditure per year?

4 What is your estimated total business expenditure per year?

2 What is your estimated spend on R&D per year?

SME

Profit making

£50,000 spend

£250,000 spend

£500,000 spend

£1,000,000 spend

Loss making

£50,000 spend

£50,000 total expenditure

£100,000 total expenditure

£250,000 total expenditure

£500,000 total expenditure

£250,000 spend

£250,000 total expenditure

£500,000 total expenditure

£1,000,000 total expenditure

£2,500,000 total expenditure

£500,000 spend

£500,000 total expenditure

£1,000,000 total expenditure

£2,500,000 total expenditure

£5,000,000 total expenditure

£1,000,000 spend

£1,000,000 total expenditure

£2,500,000 total expenditure

£5,000,000 total expenditure

£10,000,000 total expenditure

Large company

£50,000 spend

£250,000 spend

£500,000 spend

£1,000,000 spend

R&D tax credit rates prior to April 2024

SME rates

Between 1 April 2023 – 31 March 2024

RDEC Rates

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