Last updated: Dec 2025 

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The UK’s R&D tax relief system has undergone its biggest overhaul in two decades. From April 2024 onwards, the traditional SME and RDEC schemes have been replaced by a Merged Scheme and a new enhanced relief for innovative SMEs called ERIS (Enhanced R&D Intensive Support).

This 2025 guide explains how the new system works, who qualifies, what’s changed, and how to maximise your claim under the new rules.

2025 UPDATE: What Changed? (Quick Summary)

• Old SME + RDEC schemes → Merged Scheme (20% taxable credit)
• New ERIS scheme for R&D-intensive loss-making SMEs (≈27% effective benefit)
• R&D intensity threshold for ERIS = 30%
• Overseas subcontractor/EPW costs now largely restricted
• AIF (Additional Information Form) is mandatory
• Digital submission only via HMRC
• Claim Notification required for first-time claimants or those who haven’t claimed in 3+ years
• PAYE/NIC cap applies to payable credits
• Cloud, data and AI/ML costs formally included as qualifying expenditure

Understanding the New UK R&D Tax Relief System

1. The Merged Scheme

Applies to: Accounting periods starting on or after 1 April 2024

Who can claim:
All companies except those that meet the strict criteria for ERIS.

Benefit rate:

• 20% taxable credit
• After Corporation Tax (usually 25%), net benefit ≈ 15%
• If on a lower CT rate (e.g., 19%), net benefit ≈ 16.2%

Key features:

• Above-the-line credit, visible in accounts
• No subsidised cost restrictions
• Customer claims contracted-out R&D
• Overseas costs usually disallowed unless legal or geographical necessity
• PAYE/NIC credit cap applies

2. Enhanced R&D Intensive Support (ERIS)

Designed for: Loss-making SMEs with high R&D intensity

Eligibility criteria:
You must meet ALL of the following:

• Fewer than 500 employees
• Turnover ≤ €100m OR assets ≤ €86m
• R&D expenditure is ≥ 30% of total company expenditure
• The company is loss-making in the period

Benefit rate (very generous for startups):

• 86% enhanced deduction
• 14.5% payable credit
• Effective benefit: ≈27% of qualifying spend

Grace Period:
If you drop below 30% intensity this year, you can still claim ERIS if you met the condition and claimed ERIS last year.

Who Can Claim R&D Tax Credits in 2025?

Any UK company that:

• Pays UK Corporation Tax
• Is carrying out qualifying R&D work
• Spends money on that R&D work

Project success does not matter. Only the attempt at scientific or technological advancement counts.

What Counts as R&D? (HMRC Definition)

A project must:

• Seek a scientific or technological advancement
• Attempt to resolve technical uncertainty
• Be carried out by competent professionals
• Keep records of approach, tests, failures and outcomes

Examples of qualifying work:

• Developing new or improved software algorithms
• Building AI/ML models
• Creating sustainable construction materials
• Improving manufacturing efficiency
• Testing new chemicals, pharmaceuticals or advanced prototypes
• Enhancing cyber-security architecture
• Developing automated data pipelines / cloud systems

2025 R&D Tax Credit Rates: How Much Can You Claim?

Merged Scheme Example

£100,000 qualifying R&D spend →
20% credit = £20,000
After 25% CT = £15,000 net benefit

ERIS Example

£100,000 spend by an R&D-intensive loss-making SME
Net benefit ≈ £27,000 (cash)

Qualifying R&D Expenditure in 2025

Allowable Costs

• Staff costs: Salary, NICs, pension
• Subcontractors: 65% of payments (UK-based preferred)
• Externally Provided Workers (EPWs): Restricted if overseas
• Consumables: Materials, chemicals, prototypes, utilities
• Software & SaaS
• Cloud computing
• Data licences
• AI/ML development & training datasets

Restricted or Non-Qualifying

• Overseas R&D costs (unless legally/geographically required)
• Capital expenditure (but may qualify for capital allowances)
• Routine testing
• Market research
• Production / commercial activities

PAYE/NIC Credit Cap (Important for Startups)

Payable credits under both the merged scheme and ERIS are capped at:

£20,000 + 300% of your company’s PAYE + NIC liabilities

Startups with low payroll costs should check this early.

Example:
PAYE + NIC = £10,000
Cap = £20,000 + (3 × £10,000) = £50,000

If your claim benefit is £60,000, HMRC will cap it at £50,000.

Step-by-Step Guide to Claiming R&D Tax Credits (2025 Edition)

Step 1: Assess Eligibility

• Loss-making SME with 30%+ R&D intensity? → ERIS
• Everyone else → Merged Scheme

Step 2: Identify Qualifying Projects

Document for each project:

• The technological uncertainty
• The advance sought
• Why existing solutions couldn’t solve it
• Methods and experiments used

Step 3: Calculate Qualifying Expenditure

Track costs by category:

Qualifying costs = 
(Staff costs)
+ (Subcontractors × 65%)
+ (Software & cloud)
+ (Consumables) 
+ (EPWs – if allowed)

Step 4: Prepare Mandatory Documentation

You must include:

AIF (Additional Information Form)

Required before submitting your CT600.

Must contain:

• UTR
• Employer PAYE reference
• Accounting period
• Breakdown of qualifying costs
• Project descriptions (minimum 5 lines each)
• ERIS intensity calculation (if applicable)
• Contact details of responsible officer

Step 5: Claim Notification (If Required)

You must notify HMRC within 6 months of year-end if:

• This is your first ever R&D claim, OR
• You have not claimed in the last 3 accounting periods

Step 6: Submit the Claim

• Submit AIF
• File CT600 via HMRC digital portal
• Keep all R&D records for 6 years

Processing time:
4–6 weeks for straightforward claims
8–12+ weeks for first-time or complex claims

Common Mistakes to Avoid in 2025

Technical Mistakes

• Using the old SME/RDEC rates
• Poorly written project explanations
• No evidence of technical uncertainty
• Missing timesheets or staff time allocation

Costing Mistakes

• Claiming overseas subcontractors without necessity evidence
• Miscalculating R&D intensity for ERIS
• Forgetting cloud / data costs
• Incorrect subcontractor vs EPW classification

Submission Mistakes

• Missing the claim notification deadline
• Submitting AIF after CT600 (automatic rejection)
• Not keeping supporting records

Special Considerations for Startups (2025)

Startups benefit greatly from the new regime because:

• ERIS offers ≈27% cash benefit
• Losses can be surrendered for cash
• Claimable even without revenue
• Eligible for prior 2-year backdated claims

Example

AI SaaS startup spending £200,000 on model development
Cash benefit ≈ £54,000

Combining R&D Credits with Other Funding

Patent Box

• 10% corporation tax on profits from patented IP
• Works alongside R&D relief
• Best used once product commercialises

Grant Funding (Innovate UK etc.)

• Notified state aid grants may push you into the Merged Scheme
• Non-state-aid grants allow you to still claim ERIS
• De minimis aid counts toward intensity calculations

2025 Compliance Requirements

Digital-First HMRC Process

• All claims must be submitted online
• Pre-populated forms for recurring claimants
• Real-time validation checks
• Integration with digital tax accounts

Increased Scrutiny in 2025

HMRC will increase:

• Random checks
• Detailed technical assessments
• Cost evidence reviews
• Director accountability declarations

Companies must maintain:

• Technical documentation
• Staff time logs
• Project timelines
• R&D cost codes and ledgers

Maximising Your 2025 Claim

Best Practices

• Track R&D intensity monthly (important for ERIS)
• Use UK-based subcontractors when possible
• Maintain real-time project notes
• Implement R&D cost codes
• Review R&D claims quarterly

When to Use a Specialist

Consider expert support if your business:

• Is a first-time claimant
• Has complex group structures
• Received Innovate UK or EU grants
• Has high-value claims (£100k+)
• Has an HMRC enquiry

Next Steps (Action Checklist)

• Check your accounting period start date
• Calculate R&D intensity to see if ERIS applies
• Gather project evidence (technical + cost records)
• Submit claim notification (if required)
• Prepare and submit your AIF
• File CT600
• Keep records for 6 years in case of enquiry

FAQ: Updated for 2025

Can I claim under the old SME scheme?

No. The SME scheme is only for periods before 1 April 2024.

What is the minimum R&D spend for ERIS?

You must meet the 30% intensity threshold there is no minimum £ amount.

Can failed projects qualify?

Yes. Success doesn’t matter; the attempt at solving scientific/technical uncertainty does.

How do I calculate R&D intensity?

R&D expenditure ÷ Total company expenditure × 100.

How long will it take to get paid?

4–6 weeks for simple claims, longer for first-time or complex claims.

What if I claimed last year under the old scheme?

You transition automatically to the new system no action needed.

Need help with your 2025 R&D claim?

Our specialists can assess your eligibility under the Merged Scheme or ERIS, calculate your intensity percentage, and prepare a fully compliant claim ready for HMRC review.

Contact us for a free consultation.

FAQ: Updated for 2025