R&D Tax Credit Calculator UK 2025/26
Merged RDEC scheme: 20% above-the-line credit. Updated for April 2024 reforms. Free HMRC-aligned calculator.
Last updated: March 2026
UK R&D Tax Credit Calculator 2025/26
Calculate your R&D tax credit under the Merged RDEC scheme (April 2024 onwards) or ERIS for R&D-intensive SMEs
Merged RDEC — all companies from April 2024 | 20% credit above the line
What is the R&D Tax Credit?
The UK Research and Development (R&D) tax credit is an HMRC scheme designed to incentivise companies to invest in innovation. Businesses that develop new products, processes, software, or services — or improve existing ones through scientific or technological advancement — can recover a significant portion of their qualifying costs from HMRC.
From 1 April 2024, the R&D tax relief landscape changed fundamentally. The old SME enhanced deduction (which gave a 230% total deduction or a 14.5% payable credit for loss-makers) was abolished and merged with the large-company RDEC scheme into a single Merged RDEC — a 20% above-the-line credit available to all companies, regardless of size.
Two schemes now exist:
- Merged RDEC (most companies): 20% above-the-line credit on qualifying R&D spend. Applies to all accounting periods starting on or after 1 April 2024.
- Enhanced R&D Intensive Support (ERIS): 27% payable credit for loss-making SMEs where R&D spend represents 40% or more of total costs. This preserves a higher rate for genuinely R&D-intensive startups and scale-ups.
The "above the line" nature of the RDEC credit means it is recognised in the profit and loss account as income, improving a company's reported profitability — a significant difference from the old SME deduction which worked below the line.
What Qualifies as R&D Expenditure?
To qualify, R&D must seek an advance in overall knowledge or capability in a field of science or technology, and must involve resolving scientific or technological uncertainty. Routine or incremental improvements, social science, arts, humanities and commercial risk-reduction do not qualify.
| Category | Qualifies? | Examples / Notes |
|---|---|---|
| Staff costs (salaries, employer NICs, pension) | Yes | Developers, engineers, scientists, lab technicians — apportioned for R&D time |
| Externally provided workers | Yes (65%) | Agency workers/contractors — 65% of cost qualifies under Merged RDEC |
| Subcontractors | Yes (restrictions) | Connected parties: 100% of relevant costs. Unconnected: payments qualifying at cost. Must be UK-based from April 2024 (overseas allowed in limited circumstances) |
| Software licences | Yes | Development tools, cloud computing, testing platforms used in R&D work |
| Consumable materials | Yes | Prototypes, test materials, components consumed or transformed in R&D |
| Utilities (power, water, fuel) | Yes | Used in qualifying R&D activity — e.g. running lab equipment |
| Clinical trial volunteers | Yes | Payments to subjects in approved clinical trials |
| Capital expenditure | No | Buildings, equipment purchase — claim capital allowances instead |
| General administration/marketing | No | Finance, HR, sales, advertising costs |
| Patents and licences (general) | No | IP acquisition costs are excluded; R&D to create IP can qualify |
Merged RDEC Scheme 2025/26 — Full Explanation
The Merged RDEC is a single R&D tax relief scheme that replaced the old SME and RDEC schemes for accounting periods beginning on or after 1 April 2024. Key features:
- Rate: 20% above-the-line credit on qualifying R&D expenditure
- Who it applies to: All companies — SMEs and large companies alike (except loss-making ERIS-qualifying SMEs)
- Above the line: The credit is recognised as income before operating profit, improving P&L presentation
- Profitable company mechanism: The credit offsets the corporation tax liability. Net benefit = 20% credit minus the corporation tax payable on that credit. At a 25% CT rate: net benefit = 20% × (1 − 25%) = 15% of qualifying spend
- Loss-making company mechanism: The credit is payable in cash by HMRC. Effective cash = credit × (1 − CT rate). At 19%: £20,000 credit → £16,200 cash (HMRC deducts 19% of the credit as a notional tax charge before paying the balance)
- Subsidy rules: If R&D expenditure is funded by a grant or subsidy, those costs may be excluded from the claim
- Overseas R&D restriction: From April 2024, overseas R&D costs are restricted. UK costs are preferred; overseas costs only qualify where it is wholly unreasonable to replicate the conditions in the UK
£500,000 qualifying R&D spend → £100,000 credit (20%) → Reduces CT bill by £100,000 → CT on the credit itself: £100,000 × 25% = £25,000 → Net benefit: £75,000 (15% of spend)
£500,000 qualifying R&D spend → £100,000 credit (20%) → HMRC deducts 19% notional CT: £19,000 → Cash payment to company: £81,000 (16.2% of spend)
R&D Enhanced Support (ERIS) for Intensive SMEs
The Enhanced R&D Intensive Support (ERIS) scheme provides a higher payable credit rate for qualifying loss-making SMEs that are genuinely R&D-intensive:
- Who qualifies: Loss-making SMEs where qualifying R&D expenditure represents 40% or more of total relevant expenditure
- Rate: 27% payable credit (versus 20% under standard Merged RDEC)
- Payment: Cash payment from HMRC — the 27% credit is payable net of a notional 19% CT charge, giving approximately 21.87% effective cash benefit
- Typical beneficiaries: Early-stage biotech, deep-tech, AI and pharmaceutical companies where R&D is the core business activity
£200,000 qualifying R&D spend, loss-making SME, R&D = 55% of total costs → £54,000 credit (27%) → Notional CT: £54,000 × 19% = £10,260 → Cash payment: £43,740 (21.87% of spend)
How to Claim R&D Tax Credits
- Document qualifying activities during the year — Keep contemporaneous records of R&D projects, the uncertainties addressed, and staff time logs. Do not reconstruct records retrospectively.
- Calculate qualifying expenditure — Identify and apportion staff costs, subcontractors, consumables and software. Exclude capital and non-qualifying items.
- Submit the R&D Additional Information Form (AIF) — Mandatory since August 2023. Must be submitted to HMRC before or at the same time as the CT600. Requires project descriptions, qualifying costs breakdown and contact details.
- File the CT600 with R&D supplementary pages — Include the credit claim on the corporation tax return. For Merged RDEC, use the RDEC supplementary pages.
- HMRC processing: Standard claims are processed in 4–6 weeks. Enquiry cases can take 6–18 months. Ensure documentation is complete to minimise enquiry risk.
- Time limit: Claims must be made within 2 years of the end of the accounting period. Missing this deadline means the relief is lost permanently.
R&D Tax Credit Worked Examples
Example 1: Loss-Making Software Startup (ERIS — R&D Intensive)
An early-stage AI software company. 12 employees, all working on R&D. Total costs: £350,000. R&D spend: £300,000 (86% of costs — exceeds 40% threshold). Loss-making.
- Qualifies for ERIS at 27% (loss-making SME, R&D > 40% of costs)
- Credit: £300,000 × 27% = £81,000
- Notional CT deduction: £81,000 × 19% = £15,390
- Cash payment from HMRC: £65,610
- Effective cash benefit rate: 21.87% of qualifying spend
Example 2: Profitable Engineering SME (Merged RDEC at 25% CT)
A precision engineering company with £2M turnover and £400K profit before R&D credit. £500,000 qualifying R&D spend on new manufacturing processes.
- Scheme: Merged RDEC at 20%
- Gross credit: £500,000 × 20% = £100,000
- Credit reduces CT liability by £100,000
- CT payable on the credit (25%): £100,000 × 25% = £25,000
- Net benefit: £75,000 — effective rate of 15% of qualifying spend
- Profit after R&D credit and CT is materially improved
Example 3: Large Pharmaceutical Company (Merged RDEC at 25% CT)
A large pharma company with £50M profit and £5,000,000 of qualifying R&D spend on drug development and clinical trials.
- Scheme: Merged RDEC at 20%
- Gross credit: £5,000,000 × 20% = £1,000,000
- CT on the credit (25%): £1,000,000 × 25% = £250,000
- Net benefit: £750,000 (15% of qualifying spend)
- The credit is recognised above the line, boosting operating profit by £1M
R&D Tax Credit Rates — UK 2025/26 Summary
| Scheme | Credit Rate | Who Qualifies | Net Benefit (approx.) |
|---|---|---|---|
| Merged RDEC — Profitable | 20% | All companies, profit-making | ~15% (at 25% CT) |
| Merged RDEC — Loss-Making | 20% | All companies, loss-making | ~16.2% cash (at 19% CT) |
| ERIS — Loss-Making Intensive SME | 27% | Loss-making SME, R&D ≥ 40% of costs | ~21.87% cash (at 19% CT) |
| Old SME scheme (230% deduction / 14.5% credit) — abolished for periods from 1 April 2024. Claims for earlier periods still use old rules. | |||
Frequently Asked Questions
Under the Merged RDEC scheme (applying to accounting periods starting on or after 1 April 2024), the rate is 20% for all companies. Loss-making R&D-intensive SMEs (R&D spend > 40% of total costs) qualify for ERIS at 27%. The old SME enhanced deduction of 130% (totalling 230%) was abolished from April 2024.
No. The SME R&D enhanced deduction (130% additional, giving 230% total) was abolished for accounting periods beginning on or after 1 April 2024. All companies now use the Merged RDEC scheme at 20%. The only exception is ERIS at 27% for qualifying loss-making R&D-intensive SMEs. Claims for accounting periods ending before 1 April 2024 still apply the old rules.
From August 2023, you must submit an R&D Additional Information Form (AIF) before filing your CT600. The AIF requires: description of qualifying R&D projects and their scientific or technological objectives, how uncertainties were addressed, the qualifying expenditure breakdown (staff, subcontractors, consumables, software), and contact details of the main R&D contact. Keep project records for at least 6 years.
Standard R&D claims take 4–6 weeks once a complete CT600 and AIF are received. HMRC has significantly increased enquiry rates since 2023; enquiry cases can take 6–18 months. Ensure your AIF is submitted first (HMRC will reject returns without it from August 2023), and maintain comprehensive technical documentation to minimise enquiry risk.
From April 2024, the distinction is largely historical. Previously the SME scheme offered an enhanced deduction (230% total) or a 14.5% payable credit for loss-makers; RDEC (large companies) gave a 13% above-the-line credit. From April 2024, the Merged RDEC applies to all companies at 20%. Claims for pre-April 2024 periods still use the old rules applicable at that time.
Yes. Loss-making companies receive the 20% Merged RDEC credit as a payable cash payment from HMRC. The effective cash value is approximately 16.2% of qualifying spend (after the notional 19% CT deduction). Loss-making SMEs with R&D spend exceeding 40% of total costs can claim ERIS at 27%, giving approximately 21.87% in cash. This makes R&D relief particularly valuable for pre-revenue startups.
Sources & Methodology
This calculator uses the rates and rules set out in the Finance (No.2) Act 2023 and subsequent HMRC guidance on the Merged RDEC scheme.
Official References
- HMRC — R&D Tax Relief Guidance
- HMRC — Corporate Intangibles R&D Manual (CIRD)
- HMRC — Corporation Tax: R&D Relief
Key Rates (2025/26)
| Parameter | Value |
|---|---|
| Merged RDEC credit rate | 20% |
| ERIS credit rate (intensive SMEs) | 27% |
| ERIS R&D intensity threshold | 40% of total costs |
| Scheme effective date | Periods from 1 April 2024 |
| Claim time limit | 2 years from period end |
Disclaimer: This calculator provides estimates based on published HMRC R&D tax relief rates and rules for the 2025/26 tax year. It is intended for informational purposes only and does not constitute professional tax advice. R&D tax relief eligibility and quantum depends on specific facts, project documentation, and HMRC interpretation. Always consult a qualified R&D tax specialist or accountant before making a claim.
Expert Reviewed — This calculator is reviewed by our team of financial experts and updated for the April 2024 Merged RDEC reforms. Last verified: March 2026.
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