What is the Merged RDEC Scheme?
The Merged Research and Development Expenditure Credit (RDEC) Scheme is the UK's current framework for R&D tax relief, applying to all companies for accounting periods beginning on or after 1 April 2024. It replaced two previous schemes — the SME R&D relief and the large-company RDEC — with a single unified system.
The merger was designed to simplify the UK R&D tax relief landscape, which had become increasingly complex as different rules applied to different company sizes and circumstances. The new scheme applies broadly the same credit mechanism to most companies regardless of size.
Key rates at a glance
Who qualifies under the Merged Scheme?
Most UK companies that carry out qualifying R&D activities can claim under the Merged Scheme, regardless of size. This includes SMEs that previously claimed under the old SME R&D relief scheme — they now claim under the Merged Scheme instead.
The exceptions are loss-making SMEs that spend 30% or more of their total expenditure on qualifying R&D. These businesses may be eligible for Enhanced R&D Intensive Support (ERIS), which provides a higher effective rate of up to 27%.
What is the Enhanced R&D Intensive Support (ERIS)?
ERIS is a higher-rate relief specifically for loss-making SMEs that are heavily invested in R&D. To qualify, a company must meet the "intensity condition" — its qualifying R&D expenditure must be at least 30% of its total relevant expenditure.
Under ERIS, eligible companies can deduct an additional 86% of qualifying costs (on top of the standard 100% deduction), and claim a payable tax credit of up to 14.5% of the surrenderable loss. The effective benefit is up to 27% of qualifying spend — significantly more generous than the standard Merged Scheme.
Important: Even if you are eligible for ERIS, you can choose to claim under the standard Merged RDEC scheme instead. You cannot claim under both for the same expenditure.
How is the RDEC credit calculated?
Under the Merged Scheme, the RDEC works as follows:
- Identify your qualifying R&D expenditure for the accounting period
- Calculate 20% of that expenditure — this is your RDEC credit
- The credit is treated as taxable trading income (an "above-the-line" credit)
- It is then offset against your corporation tax liability through a series of steps
- Any remaining credit after offsetting tax liabilities can be paid to you as cash
| Company situation | Effective benefit | How received |
|---|---|---|
| Profit-making, paying 25% corporation tax | 15% of qualifying spend | Reduction in CT bill |
| Loss-making (not ERIS eligible) | 16.2% of qualifying spend | Cash payment from HMRC |
| Loss-making, ERIS eligible (30%+ R&D intensity) | Up to 27% of qualifying spend | Enhanced deduction + cash credit |
What costs qualify?
Qualifying expenditure under the Merged Scheme includes:
- Staffing costs for employees directly engaged in R&D (salaries, NIC, pension contributions)
- Payments to subcontractors for R&D activity (subject to restrictions — see below)
- Consumables used or transformed in the R&D process
- Software used directly in the R&D process
- Data licences used directly in qualifying R&D
- Cloud computing costs for qualifying R&D purposes
Subcontractor costs — important changes
The rules for subcontractor costs changed significantly under the Merged Scheme. The general rule is that the party who takes the decision to undertake R&D is the one that can claim. You can claim for contracting out your own R&D to another party, but there are restrictions — you can claim 65% of payments to unconnected subcontractors, and there are additional rules for connected parties.
Relief is no longer available for R&D carried out overseas by subcontractors or externally provided workers, with limited exceptions.
What doesn't qualify?
- Routine or periodic modifications to existing products or processes
- Commercial and financial research
- Work that applies existing techniques without resolving technological uncertainty
- Overseas subcontractor and EPW costs (with limited exceptions)
- Capital expenditure (though some costs may qualify under other reliefs)
How to make a claim
Claims are made through your company's corporation tax return (CT600). Since August 2023, companies must also submit an Additional Information Form (AIF) to HMRC before or alongside their CT return. The AIF requires details of qualifying projects, costs, and the methodology used to identify R&D.
HMRC has increased scrutiny of claims significantly since 2022. Self-prepared claims without specialist support carry a materially higher risk of enquiry and rejection. Most specialist advisers prepare claims on a no-win-no-fee basis, with their fee taken from the successful claim.
Time limit: Claims must be made within two years of the end of the accounting period to which they relate. Missing this deadline means losing the relief entirely.