Most UK companies now claim R&D tax relief under a single merged scheme, and getting the mechanics wrong can invalidate a claim entirely, regardless of how much qualifying spend sits behind it.
Here's what the R&D tax credits merged scheme actually means for your next claim, what R&D tax credit rates 2026/27 look like, and where the real pitfalls sit for founders claiming this year.
What is the R&D tax credits merged scheme?
The R&D tax credits merged scheme is a single, unified relief that replaced the separate SME and RDEC schemes for accounting periods beginning on or after 1 April 2024.
HMRC's own guidance covers it as the merged R&D expenditure credit scheme and enhanced R&D intensive support, legislated via the Autumn Finance Bill 2023.
Before the merger, relief depended heavily on a company's size and profit position, with SMEs getting a generous additional deduction and large companies claiming a smaller taxable credit through RDEC. The merged scheme flattens that distinction.
Nearly every company now claims R&D tax credits through one RDEC-style mechanism, with a separate, more generous route (ERIS) carved out for loss-making, R&D-intensive SMEs.
If you're already claiming, this affects both how much relief you're entitled to and how you go about claiming it.
Why HMRC merged the SME and RDEC schemes
HMRC merged the two schemes primarily to cut fraud and error, which had become a serious drag on the old SME regime.
HMRC's Annual Report puts the estimated error and fraud rate for Corporation Tax R&D reliefs in 2023-24 at 6.4% (£493 million), split between 11.1% for the SME scheme and just 3.2% for RDEC.
That gap explains the direction of travel: the SME scheme's generosity made it a target, so the merged rules import RDEC's tighter, above-the-line structure across the board.
It wasn't purely a fraud crackdown, either. Total R&D expenditure held broadly steady through the transition, at £46.1 billion in 2023/24 against £46.7 billion in 2022/23 and £45.1 billion in 2021/22, which suggests the goal was filtering out bad claims rather than shrinking genuine investment.
HMRC now estimates the overall error and fraud rate has fallen further, to around 5.3% for both 2024-25 and 2025-26.
R&D tax credit rates 2026/27: standard scheme vs ERIS
R&D tax credit rates for 2026/27 sit at 20% under the standard merged scheme and up to 27% under ERIS, with the exact benefit depending on profitability and tax rate.
The 20% credit is itself taxable, so it nets out to roughly 15% after corporation tax for most companies: £100,000 of qualifying spend produces a £20,000 gross credit and a £15,000 net benefit at the 25% main rate, rising to £16,200 at the 19% small-profits rate.
It works whether your company is profitable or loss-making, and flows through your Corporation Tax return either way.
ERIS (Enhanced R&D Intensive Support) suits a narrower group: loss-making SMEs where R&D spend makes up at least 30% of total costs, a threshold lowered from 40%.
It's structured differently, combining an 86% enhanced deduction with a 14.5% credit rate, which on £100,000 of qualifying spend produces a £26,970 repayable cash credit, worth up to £27 for every £100 spent.
Looking ahead, the Autumn Budget 2025 left both rates untouched, with only a technical tweak to intra-group payments making it through, and the industry still waiting on an SME advance assurance consultation expected to report in spring 2026.
The current 2026/27 rates are 20% for the merged scheme and 14.5% for ERIS. Companies should check the latest HMRC guidance when preparing a claim because R&D tax rules can change.
Who qualifies under the merged scheme
A project qualifies for R&D tax relief if it seeks an advance in science or technology and faces genuine scientific or technological uncertainty that a competent professional couldn't readily resolve, commercial novelty alone doesn't count.
HMRC also expects the work to be systematic, with a defined project, team, and budget, and largely UK-based since April 2024.
Qualifying fields span physical, biological, and mathematical sciences, engineering, computer science, pharmaceuticals, and materials science, though software specifically needs genuine algorithmic or architectural advance rather than routine development.
Market research, commercial planning, and most website or app builds don't qualify.
Two changes under the merged scheme catch founders out most often. First, subcontracting: where one company subcontracts R&D to another, only one party, broadly whoever bears the risk and intends to carry out the work, can now claim.
Second, overseas work: subcontractor and externally-provided-worker costs incurred outside the UK are largely excluded, unless the work genuinely couldn't be replicated here for geographical, regulatory, or legal reasons. Lower cost abroad is never a valid reason.
How to claim R&D tax credits
How to claim R&D tax credits comes down to getting three things right, in order: a Claim Notification Form (CNF) submitted on time, a mandatory Additional Information Form (AIF), and the claim itself included in your Corporation Tax return.
Miss the first two and the claim never gets near HMRC's door, however strong the underlying spend.
- Pre-notify with a CNF, if required First-time claimants and companies whose previous R&D claim falls outside HMRC's three-year notification test generally need to submit a Claim Notification Form. The deadline is six months after the end of the relevant period of account. Missing the deadline invalidates the claim where notification is required.
- Identify qualifying projects against the advance-and-uncertainty test, documenting what you set out to achieve and what stood in the way.
- Calculate qualifying expenditure across staff costs, subcontractors, consumables, software, data licences, and cloud computing.
- File the AIF before or alongside your CT600, including company details, a named senior R&D contact, and descriptions of your qualifying projects.
- Submit within two years of the end of the relevant accounting period.
Most founders who get this wrong don't fail on the science, they fail on sequencing. Learning how to claim R&D tax credits properly really means treating the CNF and AIF as gatekeepers, not paperwork to tidy up afterwards.
Common mistakes and pitfalls under the new rules
Missing the CNF deadline is the single most damaging mistake under the merged scheme, invalidating a claim outright regardless of how well-evidenced the spend is.
HMRC statistics show that R&D claims fell 26% in 2023/24 compared with the previous year, with SME claims down 31%. HMRC attributes the changes to several factors, including changes to relief rates, the R&D-intensive SME rules, Corporation Tax rates and the introduction of mandatory additional information requirements.
Beyond that, founders commonly assume old subcontractor rules still hold, misjudge which party can claim on a shared project, or try to include overseas costs on cost grounds alone, all excluded reasoning under the current framework.
HMRC has also sharpened scrutiny on software and AI-labelled claims specifically, pushing back where the language of innovation isn't backed by genuine technical uncertainty.
Also Read: Due Diligence red flags: 10 Traps Investors Spot Fast
FAQs
1. What is the merged R&D scheme?
The merged R&D scheme is the single, unified R&D tax relief that replaced the separate SME and RDEC schemes from 1 April 2024. It provides a 20% above-the-line taxable credit for companies of any size, with ERIS as a distinct, more generous route for loss-making, R&D-intensive SMEs.
2. What is an R&D-intensive SME (ERIS)?
An R&D-intensive SME is a loss-making small or medium company whose qualifying R&D spend makes up at least 30% of its total costs. These companies can claim under ERIS, with the relief potentially worth up to £26.97 for every £100 of qualifying R&D expenditure before applicable loss and PAYE cap restrictions.
3. What happened to the old SME R&D scheme?
The old SME scheme, which gave a 130% additional deduction, was withdrawn for accounting periods starting on or after 1 April 2024. Most companies now claim through the merged scheme at 20%, with ERIS as the sole remaining exception for R&D-intensive loss-makers.
Sources: Data drawn from HMRC's guidance on the merged R&D expenditure credit scheme and enhanced R&D intensive support, HMRC's Research and Development Tax Credits Statistics (published 30 September 2025, covering the 2023–24 tax year), HMRC's 2025-26 Annual Report, and reporting from Price Bailey. Figures reflect the most recent available data at the time of writing.
The EP+ Editorial Desk covers UK startups, founder stories, and venture capital. All editorial content is independently produced and human-reviewed before publication.
