If you run an early-stage company and you heard the R&D scheme got "merged" and cut, you'd be forgiven for assuming the relief is gone. It isn't. The rules changed, the headline rate for most claimants is lower than the old SME scheme, but a loss-making, research-heavy startup can still get real cash back.
The catch is that the relief is now easier to lose on a technicality than it used to be. Two short forms, filed in the right order and on time, decide whether your claim is valid at all.
This guide explains what's still on the table, which route fits your company, and how the numbers actually work, using current figures. It's written for UK founders and finance leads at startups and small limited companies.
<h2 id="what-changed">What changed under the merged R&D scheme?</h2>
For accounting periods beginning on or after 1 April 2024, the old separate SME and RDEC schemes were replaced by a single merged R&D expenditure credit (RDEC) scheme, plus a targeted route for loss-making research-intensive SMEs called Enhanced R&D Intensive Support (ERIS).
So instead of two schemes split by company size, most companies now use one. The main exception is the ERIS carve-out for startups that spend a large share of their costs on R&D.
The merged scheme works as an "above the line" credit. You get a credit calculated on your qualifying spend, that credit is itself taxable, and the net benefit lands after that notional tax is applied. That's a real shift from the old SME scheme, which gave an extra deduction against profits.
<h2 id="what-can-you-claim">What can a startup still claim in 2025/26?</h2>
There are two routes, and which one applies depends mainly on whether you're loss-making and how research-heavy you are.
| Route | Who it's for | Headline mechanic | Rough net benefit per £100k qualifying spend |
|---|---|---|---|
| Merged RDEC | Most companies, including profitable startups | 20% taxable credit on qualifying spend | About £15,000 to £16,200 |
| ERIS | Loss-making SMEs that are R&D-intensive | 186% deduction, surrender loss for a payable credit | Up to about £26,970 |
The merged scheme R&D expenditure credit rate is 20% of qualifying R&D spend, per HMRC's merged-scheme guidance.
That credit is taxable. For a company paying the main rate of Corporation Tax at 25% for FY2025, the credit is effectively reduced by that 25%, giving roughly a 15% net benefit. For a loss-making company, the credit is restricted using a notional 19% rate (the small profits rate for FY2025), which leaves a higher net benefit of about 16.2%.
A startup can claim under the merged scheme whether it's profitable or not. If it's loss-making but not research-intensive enough for ERIS, the merged RDEC credit can still be paid out in cash, subject to a cap (more on that below).
<h2 id="what-is-eris">What is ERIS and do I qualify?</h2>
ERIS is the route that keeps a meaningful uplift alive for the startups that need it most: loss-making companies pouring most of their money into research.
To qualify for ERIS for an accounting period beginning on or after 1 April 2024, your company must be a loss-making SME, and your relevant R&D expenditure must be at least 30% of your total expenditure. That 30% intensity threshold is the gateway. HMRC lowered it from the previous 40%, which brought more companies back into scope.
If you qualify, ERIS gives you an extra 86% deduction on qualifying R&D costs (so 186% in total once you include the normal 100%). You can then surrender the resulting loss for a payable tax credit worth up to 14.5% of the surrenderable loss.
In plain terms, ERIS is the closest thing left to the old, generous SME cash-back scheme, but it's now ring-fenced for genuinely research-intensive, loss-making SMEs.
<h2 id="worked-examples">How much is an R&D claim worth? (worked examples)</h2>
Numbers make this concrete. Both examples below use £100,000 of qualifying R&D spend so you can compare the routes directly.
Illustrative example 1: profitable startup, merged RDEC
Aurora Robotics Ltd is a small profitable limited company with £100,000 of qualifying R&D spend in its year ending 31 March 2026.
- Merged RDEC credit: £100,000 x 20% = £20,000
- Credit is taxable. As a profit-maker, it bears Corporation Tax at the 25% main rate for FY2025: £20,000 x 25% = £5,000
- Net benefit: £20,000 - £5,000 = £15,000 (an effective 15%)
Illustrative example 2: loss-making, research-intensive startup, ERIS
Lumen Bio Ltd is a loss-making SME. Of its total spend, more than 30% is qualifying R&D, so it meets the intensity threshold. It also has £100,000 of qualifying R&D spend in the same period.
- Extra deduction: £100,000 x 86% = £86,000 added to the £100,000 already deducted, so £186,000 total
- Assume the company surrenders the full £186,000 enhanced amount as a loss
- Payable credit: £186,000 x 14.5% = £26,970 (an effective rate of about 27%)
Same £100,000 of spend, very different outcomes. That gap is exactly why getting the route right matters, and why an honest assessment of your intensity percentage is worth doing early. Our Corporation Tax services team runs this calculation as part of year-end work for limited companies.
A caution on the ERIS figure: the payable credit is based on the loss you actually surrender, which is the lower of your unrelieved trading loss and the enhanced R&D amount. If your overall loss is smaller than the enhanced figure, the credit is smaller too. The example assumes the full enhanced amount is available to surrender.
<h2 id="which-route">Which route should my startup use?</h2>
You don't usually get to "pick" freely. The facts of your year decide it. Here's the quick logic:
- Are you loss-making? If no, you're on the merged RDEC route, with a net benefit around 15% after the 25% main rate (FY2025).
- If yes, is your relevant R&D at least 30% of total spend? If yes, you can use ERIS, which is materially more generous (up to about 27%).
- Loss-making but under 30% intensity? You stay on merged RDEC, and the credit can still be paid in cash, but the PAYE/NIC cap may limit how much you receive.
That PAYE/NIC cap matters for thin-team startups. The payable credit in an accounting period is capped at £20,000 plus 300% of the company's relevant PAYE and National Insurance liabilities. A founder paying themselves little salary and heavy on subcontractors can hit this ceiling, so it's worth modelling before you bank on a figure.
If you're not yet sure whether your company even counts as an SME for these rules, or you're weighing how R&D relief sits alongside your wider position, that's a conversation worth having with a tax adviser before you file. Founder-stage planning is exactly what our startups support is built around.
<h2 id="qualifying-rd">What counts as qualifying R&D?</h2>
The relief is narrower than most founders expect. "We built a clever product" is not enough on its own.
To qualify, a project must seek an advance in science or technology by resolving scientific or technological uncertainty that a competent professional in the field couldn't readily work out. Routine work, cosmetic tweaks, and commercial innovation that doesn't push the technical envelope don't count.
Qualifying costs typically include relevant staff costs, a portion of subcontractor and externally provided worker costs, consumables, and certain software and data/cloud costs. The exact treatment of overseas and subcontracted work tightened under the merged scheme, so don't assume an old claim's cost mix still works.
This is the area HMRC scrutinises hardest. Claims now need a clear technical narrative and a proper cost breakdown, and weak documentation is the fastest way to an enquiry. Keep contemporaneous notes of the uncertainties you tackled, not a story written up months later.
<h2 id="deadlines">What are the deadlines and forms that catch people out?</h2>
This is where good claims die. Two forms, two rules, no leeway.
1. The claim notification form. For accounting periods beginning on or after 1 April 2023, many companies must tell HMRC in advance that they intend to claim. The notification period ends six months after the end of your period of account. You must notify if you're a first-time claimant, or if your last claim was made more than three years before the last day of that notification period. Miss it and the claim is simply invalid, with no appeal.
2. The additional information form (AIF). This sets out your projects and costs. It must reach HMRC before or on the same day as your Company Tax Return. File the return first without it and HMRC will strip the R&D claim out.
So the order is: notify in time (if required), then submit the AIF on or before you file the CT600. Get the sequence wrong and an otherwise valid claim is lost.
In practice, the single most common own goal we see is a founder who does brilliant qualifying work, then misses the six-month notification window because nobody flagged it. Diary it the day your period of account ends.
Talk to Zmartly about your R&D claim
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R&D relief is still worth real money to the right startup, but the merged-scheme rules reward companies that get the route, the costs and the deadlines right. If you're planning a claim for a current or upcoming period, book a free 20-minute call with a Zmartly accountant and we'll tell you which route fits and what it's likely worth before you commit. Get in touch at zmartly.co.uk/contact.
<h2 id="faqs">Frequently asked questions</h2>
Can startups still claim R&D tax credits in the UK?
Yes. For accounting periods beginning on or after 1 April 2024, startups claim under the merged R&D expenditure credit scheme at a 20% credit rate, or under Enhanced R&D Intensive Support (ERIS) if they're a loss-making SME spending at least 30% of total costs on R&D.
How much is the merged R&D scheme worth?
The merged scheme gives a 20% taxable credit on qualifying R&D spend. After the credit is taxed, the net benefit is roughly 15% for a company paying the 25% Corporation Tax main rate (FY2025), and about 16.2% for a loss-maker where a 19% notional rate applies.
What is the 30% R&D intensity threshold?
It's the gateway to ERIS. A loss-making SME qualifies for ERIS if its relevant R&D expenditure is at least 30% of its total expenditure for accounting periods beginning on or after 1 April 2024. HMRC lowered the threshold from 40% to 30%, bringing more startups into scope.
Do I need to tell HMRC before I claim R&D relief?
Often, yes. First-time claimants, and companies whose last claim was more than three years before the end of the notification period, must submit a claim notification form within six months of the end of the period of account. Miss that window and the claim is invalid.
What is the PAYE and NIC cap on R&D credits?
The payable R&D credit in an accounting period is capped at £20,000 plus 300% of the company's relevant PAYE and National Insurance liabilities. Startups with low salaries and heavy subcontractor costs can hit this cap, so it's worth checking before relying on a figure.
