R&D tax relief for UK startups after the merged scheme: what changed

If your accounting period began on or after 1 April 2024, you are not on the old SME R&D scheme. HMRC’s guidance on the merged scheme and enhanced R&D intensive support says those two reliefs replace the old RDEC and SME schemes for those periods. The qualifying-expenditure rules are shared. The way the credit is calculated is not. Periods that began earlier can still fall under the old rules. Check the start date of the period before you reuse last year’s workings.

This note is the shape of the change. It is not a computation for your company, and it is not an estimate of what HMRC will pay.

The merged scheme

The merged scheme is a taxable expenditure credit. How to work out the relief tells you to add up the qualifying costs and multiply by 20%. That 20% figure is the credit. It is included in taxable profits. It is not an extra 20% of profit, and it is not automatically a cash payment of 20%.

Because the credit is taxable, the net effect depends on the corporation tax rate that applies to you. Published rates are on GOV.UK: 25% on profits above £250,000, 19% if profits are £50,000 or less, and marginal relief in between. Those profit thresholds are reduced for short periods and divided by the number of associated companies.

An illustration, using only those published percentages: a taxable credit of 20% is worth 15% after tax at the 25% rate (20% × (1 − 0.25)), and about 16.2% after tax at the 19% small profits rate (20% × (1 − 0.19)). That is arithmetic on the rates. It is not your result. Loss-making companies go through HMRC’s payment steps, and the amount that can be paid out can be limited by the PAYE cap.

The cap, for both the merged scheme and ERIS, is described in HMRC’s manual at CIRD140000: £20,000 plus 300% of the company’s relevant PAYE and National Insurance liabilities for the period. For a period shorter than 12 months, the £20,000 is reduced proportionately. Under the merged scheme, credit above the cap is generally carried forward. Under ERIS, a payable credit above the cap can make the claim invalid. Read the manual before you assume a pre-revenue company with almost no payroll will receive the full credit in cash.

Enhanced R&D intensive support

ERIS is not the default for “startups”. The merged-scheme guidance says it is for loss-making SMEs whose relevant R&D expenditure is at least 30% of total relevant expenditure, including connected companies, for periods beginning on or after 1 April 2024. A company that qualifies can choose ERIS or the merged scheme. It cannot claim both on the same costs.

Where ERIS applies, the company can deduct an extra 86% of qualifying costs when it calculates its adjusted trading loss, on top of the 100% already in the accounts, so the deduction is 186% in total. It can also claim a payable tax credit of up to 14.5% of the surrenderable loss. That payable credit is not taxable. The steps are on the work-out page.

If the surrenderable loss equals the enhanced expenditure, 14.5% of 186% is about 27% of the qualifying cost. Again, that is an illustration of the published percentages, and only if the intensity test, the loss, the surrenderable-loss cap and the PAYE cap all line up. Many companies will not be in that position. “Most tech startups get 27% in cash” is not what the guidance says.

Companies with a registered office in Northern Ireland should read the extra ERIS note on the same GOV.UK page. The guidance was updated in January 2026 to cover opting out in that case, and what happens when the credit exceeds the PAYE cap.

What else changed in practice

Which costs qualify. The merged scheme did not copy the old SME subcontracting rules unchanged. Contractor and externally provided worker costs are a common place for a claim to be wrong. Use the current list of qualifying costs on GOV.UK rather than a worksheet from 2022.

Notifying HMRC and the additional information form. How to claim on the Company Tax Return explains the boxes on the return and points you to the claim notification and the additional information form. Some companies have to tell HMRC they intend to claim before they file. The window is on GOV.UK and is easy to miss if the claim is left until the return is nearly due. Do not assume everything can be dropped into the CT600 at the end.

The activity test has not become looser. The work still has to be R&D in the sense the guidelines use: a project seeking an advance in science or technology, not a new feature built with familiar methods, and not a commercial or process advance on its own. If you cannot describe the uncertainty, you do not yet have a claim narrative. Staff time still has to be evidenced. A percentage of the engineering payroll, with no project record, is how enquiries start.

Connected parties and grants. Intensity for ERIS looks at connected companies. Grants and other subsidies can change what you may claim. Put them on the table before anyone multiplies a salary by a percentage.

How to talk about it internally

Keep three numbers separate: qualifying expenditure you can evidence, the credit the legislation describes, and the cash you might receive after tax and the cap. Boards get into trouble when those are presented as one figure titled “the R&D refund”.

Finox can prepare an R&D claim as a separate piece of work. The fee we publish is 15% of the credit claimed, and there is no fee if nothing qualifies. That is a fee. It is not a statement that a claim will succeed, or of the amount HMRC will pay. The technical judgement on whether the project is R&D sits with the people who did the work and with whoever signs the claim.

If you want the monthly books in good enough shape that a later claim is not a reconstruction, that is the Founder Finance retainer: a close you can trace, typically £750–1,250 a month. The claim itself is not bundled into that sentence.

Frequently asked questions

General information for UK founders, not advice on your own facts. Tax and company-law rules change. Check the linked GOV.UK pages and take advice before you rely on a figure.