RDEC vs ERIS: Reporting Requirements Explained

RDEC and ERIS are two UK R&D tax relief schemes introduced under a reformed framework from 1 April 2024.

RDEC applies to most companies conducting qualifying R&D, while ERIS is specifically for loss-making, R&D-intensive SMEs meeting strict criteria. Businesses can only claim under one scheme per accounting period, making it crucial to understand their differences.

Key Points:

• RDEC: Offers 18.6% relief for loss-making companies. Credits are taxable and recorded above the line, improving profit-before-tax.
• ERIS: Provides 26.97% relief for qualifying SMEs. Credits are non-taxable and recorded below the line, reducing tax liability directly.
• Eligibility: ERIS requires SMEs to have 30% or more of total expenditure on R&D and be loss-making before the enhanced credit is applied.
• Deadlines: Claim notifications are due within six months of the accounting period's end.

Quick Comparison:

Both schemes require detailed records, timely notifications, and compliance with HMRC rules. Choosing the right scheme ensures maximum relief while avoiding penalties.

RDEC Reporting Requirements

To successfully claim under the RDEC scheme, companies must follow specific reporting steps to meet HMRC's compliance rules. These requirements have become stricter following the 2024 reforms, with a sharper focus on documentation and preventing fraudulent claims.

Notification of Intent to Claim

Once a company determines it is eligible, timely and accurate reporting is crucial. The notification requirement applies to first-time claimants and companies that haven’t submitted an R&D claim in the three years leading up to the claim notification deadline.

The notification period begins at the start of your accounting year and ends six months after the accounting period concludes. For instance, if your year-end is 31 December 2024, you must notify HMRC by 30 June 2025. Missing this deadline can jeopardise your ability to make a valid claim.

It’s important to note that R&D claims for accounting periods starting before 1 April 2023, but amended on or after 1 April 2023, do not count towards the three-year claim history. As a result, even companies with a regular history of claims may need to submit a notification in certain cases.

The notification form itself is straightforward and only requires basic project details. Filing it on time extends your deadline for submitting the full claim to two years after the accounting period ends. Without it, you have just six months to submit your full claim, which could lead to missed opportunities if the deadline is overlooked.

Required Documentation

Detailed records are the backbone of a successful RDEC claim. Companies must maintain thorough documentation to justify their qualifying R&D expenditure, including costs for staff, contractors, and externally provided workers (EPWs).

You’ll need to clearly document the technical uncertainties your projects aimed to resolve and explain how your work meets HMRC's criteria for R&D. This includes providing project descriptions that highlight the scientific or technological advancements you pursued and the challenges faced along the way.

Financial documentation is equally important. Annual accounts, Corporation Tax computations, and payroll records are essential to substantiate eligible staff costs tied to R&D activities. Well-organised records can significantly speed up HMRC’s processing of your claim.

From 1 April 2024, a new requirement comes into play: all staff, contractors, and EPWs must perform their R&D work within the UK to qualify, regardless of their nationality or usual residence. This makes it critical for companies to track the location of their R&D activities to ensure compliance.

Submission Process

RDEC claims must be submitted as part of your Corporation Tax return (CT600), which is typically filed after finalising your company’s accounts. This provides a longer window compared to the statutory accounts filing deadline.

Before submitting your CT600, you must complete the Additional Information Form (AIF). This digital form is mandatory for all R&D claims and requires significantly more detail than the initial notification form. It includes:

• A narrative explaining the technical uncertainties tackled, your approach to addressing them, and why the work qualifies as R&D under HMRC’s guidelines.
• A detailed breakdown of costs, categorising qualifying expenditure such as staff costs, contractor fees, and other relevant expenses.

One key difference between RDEC and ERIS lies in how the credit is treated in your accounts. RDEC credits are recognised above the line, meaning they positively impact your profit-before-tax. This can improve how your financial performance is presented to stakeholders and investors, as the credit appears as a positive adjustment to operating profit.

Given that regulations can change and past claims may affect future eligibility, companies should review their compliance and eligibility annually. Keeping comprehensive records throughout the year - not just at claim time - can simplify the process and minimise the risk of errors or delays that might prompt HMRC to investigate.

ERIS Reporting Requirements

ERIS provides enhanced tax relief but comes with stricter reporting rules. To qualify, companies must meet specific financial criteria and maintain detailed records to prove their eligibility.

Eligibility and R&D Intensity Threshold

Central to ERIS eligibility is the 30% R&D intensity threshold. This means your qualifying R&D expenditure must be at least 30% of your total operating costs, and your company must show a loss before factoring in the enhanced credit. To calculate this, divide your qualifying R&D costs by total operating costs, then multiply by 100.

If your company is profitable before applying the credit, you cannot claim under ERIS - even if you meet the 30% threshold. Instead, you’ll need to use the merged RDEC scheme, which offers a lower benefit of 18.6%, compared to ERIS’s 26.97%.

There is a grace period for businesses that previously met the threshold and claimed SME or ERIS tax credits for costs incurred on or after 1 April 2023. For Northern Ireland-based SMEs, a rolling three-year cap of €300,000 applies to ERIS benefits.

Once you confirm eligibility, you’ll need to compile thorough documentation to support your claim.

Documentation and Evidence

To claim ERIS relief, you must provide clear evidence of your R&D intensity and loss-making status. HMRC requires you to demonstrate that you meet the criteria for the enhanced relief.

Prepare technical narratives that describe the R&D challenges, your approach, and the outcomes of your projects. These should directly link costs to specific R&D activities. Include a detailed breakdown of qualifying costs - such as staff expenses, subcontracted work, materials, and software - to substantiate your 30% intensity calculation.

Your financial statements must clearly show your loss-making position before the enhanced credit is applied. This requires submitting annual accounts and Corporation Tax computations that reflect your financial status prior to claiming the R&D tax credit.

For accounting periods starting on or after 1 April 2024, you will need to prove that all R&D work carried out by staff, contractors, and externally provided workers (EPWs) took place within the UK. This rule applies regardless of the worker’s nationality, usual residence, or your company’s registration location. However, for expenditure incurred from 1 April 2023 in accounting periods beginning before 1 April 2024, there are no restrictions on overseas activities. Tracking where R&D work is performed is critical for compliance going forward.

HMRC also expects contemporaneous time records to support your claims. These records should detail who worked on which projects, the duration of their involvement, and where the work was conducted.

Submission and Compliance

Once you’ve gathered all the necessary evidence, you can submit your claim using the appropriate forms.

If you’re a first-time claimant or haven’t made an R&D claim in the last three years, you must file an Advance Notification Form with HMRC. This applies to accounting periods starting on or after 1 April 2023. The form must be submitted within the same timeframe as RDEC claims - between the start of your accounting period and six months after it ends.

The Advance Notification Form requires only basic project details - less comprehensive than the full R&D tax credit claim - but filing it on time extends your deadline for submitting the full claim to two years after the end of the accounting period. Without it, you’ll have just six months to file the full claim.

When you’re ready to submit, complete the digital Additional Information Form. This should include your technical narrative, detailed cost breakdown, and evidence of ERIS eligibility. Submit this alongside your CT600 form.

One key difference between ERIS and the RDEC scheme lies in how the tax credits are treated in financial statements. ERIS tax credits are non-taxable and recorded below operating profit, affecting only the tax charge. This mirrors the approach of the former SME scheme. If the credit reduces your tax liability, it will appear in the tax line of your income statement and in the Corporation Tax creditor. Unlike RDEC claims, ERIS credits do not boost your reported operating profits, as they are not recorded above the line.

Given the government’s emphasis on thorough documentation and reducing errors, maintaining detailed records is vital. Document all aspects of your R&D activities, including the challenges faced and how the work progressed. Retain these records for at least six years to prepare for potential HMRC inquiries.

All cost categories are available under the ERIS scheme, but it’s crucial to categorise expenses by type and location for accurate claim preparation. Professional advisors, like Zest R&D Tax Advisors, can help set up effective record-keeping systems and ensure compliance with the evolving regulations. This is especially important given the stark difference in relief rates - £26,970 versus £18,600 for every £100,000 of qualifying expenditure.

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RDEC vs ERIS: Side-by-Side Comparison

Understanding the differences between RDEC and ERIS is essential when selecting the right scheme and preparing claims accurately. Both schemes apply to accounting periods starting on or after 1 April 2024, but they cater to different types of companies with specific reporting needs. Here's a detailed breakdown of how they compare.

The primary difference lies in eligibility. RDEC, the merged scheme, is open to all R&D claimants except loss-making, R&D-intensive SMEs. ERIS, on the other hand, is tailored specifically for loss-making SMEs that meet a 30% R&D intensity threshold. Importantly, expenditure must be claimed under only one scheme.

For loss-making companies, ERIS provides a much higher relief rate. Eligible businesses can benefit from a 26.97% rate, compared to the 18.6% offered under RDEC. For every £100,000 of qualifying expenditure, this equates to an additional £8,370 in relief.

The schemes also differ in how credits are treated in financial statements. RDEC credits are recognised as an above-the-line benefit, boosting profit-before-tax, whereas ERIS credits are non-taxable and treated as a below-the-line benefit, affecting only the tax charge.

Key Differences and Similarities

Below is a summary of the key comparisons:

Both schemes now exclude overseas R&D expenditure for accounting periods beginning on or after 1 April 2024. This means all R&D work - whether performed by staff, contractors, or externally provided workers - must take place within the UK, regardless of nationality or the company’s registered address.

For SMEs based in Northern Ireland, there’s an additional consideration: a €300,000 rolling three-year cap on ERIS benefits. Once this cap is reached, claims can still be made under RDEC, but only at the lower 18.6% rate. SMEs in other parts of the UK are not subject to this limitation.

A grace period is available to help companies transition between schemes. If your last 12-month accounting period met the R&D intensity condition and you made a valid claim for SME relief or ERIS on expenditure incurred on or after 1 April 2023, you can continue claiming under ERIS. This ensures continuity even if your R&D intensity fluctuates.

When preparing claims, it’s essential to identify all eligible costs for each accounting period, including overlapping expenses with connected parties. Recent rule changes regarding subcontracted R&D work may also affect how costs are documented and claimed, so careful attention to these updates is crucial.

If your company qualifies for ERIS - meeting the SME status, 30% R&D intensity threshold, and a loss-making position before the enhanced expenditure - it offers significantly better relief. Otherwise, the RDEC scheme is the better fit. Your decision might also depend on how you wish to present R&D relief in your financial statements.

Finally, accurate and thorough record-keeping is vital. Keeping detailed documentation from the start - not trying to piece it together later - minimises errors, reduces the risk of fraud, and ensures compliance with HMRC requirements.

How to Ensure Accurate Reporting and Increase Claim Value

Accurate reporting is essential for maximising the value of your R&D tax relief claim while staying compliant with HMRC's rules. Both the merged RDEC scheme and ERIS require careful attention to detail, and the way you approach your claim can significantly influence its outcome.

Maintaining Accurate Records

The backbone of a strong R&D tax relief claim is thorough, up-to-date record-keeping. This not only speeds up the submission process but also lowers the risk of errors or issues with compliance.

Make it a habit to document your R&D activities as they happen. Meeting minutes, project logs, and other concise records are invaluable. Focus on capturing the reasoning behind your work - what makes it R&D rather than routine development?

Cost allocation is another critical area. Ensure you record all qualifying expenses, such as staff wages, subcontractor fees, consumables, and software costs. Additionally, maintain evidence of where work was actually performed, not just where employees are based.

The accounting treatment for RDEC and ERIS differs, which impacts how you record these claims. Under RDEC, the credit is reflected above the line in your accounts, increasing profit before tax. In contrast, ERIS credits are non-taxable and only affect the tax charge below the line. Make sure your financial records reflect these differences correctly from the start.

For ERIS claimants, demonstrating R&D intensity is crucial. You’ll need to prove that at least 30% of your total expenditure qualifies as R&D. Keep clear records to support this calculation, and if you’re relying on the grace period - where you met the threshold in the previous period - document that as well.

"R&D monitoring now forms part of our routine management systems – Thank you Barrie!"
– Joanna Edwards, Director of Edwards Diving Services Limited

Incorporating R&D documentation into your daily processes, rather than treating it as an annual task, can improve the quality of your records while reducing the administrative load. Solid record-keeping also lays the groundwork for effective professional advice.

Working with Professional Advisors

Navigating the complexities of RDEC and ERIS can be challenging, especially with new rules coming into effect from 1 April 2024. Professional advisors who specialise in R&D tax relief can make a big difference, helping you maximise your claim while ensuring compliance.

Zest R&D Tax Advisors, for example, go beyond simply crunching numbers. They identify which scheme your business qualifies for, uncover all eligible costs, and make sure your submission aligns with HMRC’s requirements.

Specialists are also well-versed in the updated rules for contracted-out and contracted-by arrangements, which could affect your claim if not handled correctly. Zest R&D Tax Advisors offer fixed-fee support based on a percentage of your successful claim, providing expert guidance throughout the process.

Their services often include preparing and submitting essential documents like the Additional Information Form and Claim Notification Form. They also work closely with your accountant to ensure financial records are accurate and aligned. This expertise is especially valuable for businesses involved in niche or highly technical projects, where eligible costs might otherwise be overlooked.

Many businesses find that working with professional advisors significantly reduces the time spent on their claim. Instead of spending weeks navigating the process alone, clients often report needing less than half a day to finalise their submission. Alongside this support, staying informed about legislative updates is key to maintaining accuracy.

Staying Updated on Legislation

Good record-keeping and professional advice are just the start - you also need to stay on top of legislative changes to protect your claim. R&D tax relief rules are constantly evolving, and keeping up with these changes is essential for compliance and maximising your claim’s value. The shift from the SME and RDEC schemes to the merged regime and ERIS is a clear example of how quickly things can change.

It’s wise to review your R&D tax relief practices annually, ideally before submitting your Corporation Tax return. However, certain events or updates should prompt an immediate review, such as:

• Changes to overseas restriction rules
• Updates to HMRC guidance on contracted arrangements
• Adjustments to the R&D intensity threshold for ERIS eligibility
• Modifications to claim notification requirements or deadlines

Your business circumstances may also trigger a reassessment. For example, shifting from profit-making to loss-making could make you eligible for ERIS, or fluctuations in R&D intensity around the 30% threshold might require a review of your scheme eligibility. Additionally, if you start working with contractors or external workers, ensure their work is conducted within the UK.

Another important point: amended returns may not count toward the three-year look-back period for R&D claims. This makes it critical to review your position annually. While professional advisors can help you stay informed, it’s also a good idea to monitor HMRC guidance directly - through updates, professional organisations, webinars, or training sessions.

Conclusion

RDEC and ERIS represent two distinct paths for claiming R&D relief, each with its own rules, benefits, and eligibility criteria. These differences make precise record-keeping and adhering to submission deadlines absolutely essential.

Under the RDEC scheme, credits are accounted for "above the line", which means they increase profit before tax. On the other hand, ERIS is designed for loss-making SMEs heavily involved in R&D, offering non-taxable credits that only affect the tax charge. For companies that qualify, ERIS provides a benefit rate of 26.97%, which is notably higher than the 18.6% available under the merged scheme.

Both schemes demand meticulous documentation. This includes tracking all qualifying expenditures and submitting claim notifications on time - especially if you're claiming for the first time or haven't claimed in the past three years. Missing these deadlines could mean losing out on the relief altogether.

The transition from earlier schemes has introduced additional complexities. Eligibility now hinges on factors like R&D intensity thresholds, restrictions on overseas spending, and rules around contracted-out work. For companies that no longer qualify for ERIS but previously used the SME scheme, these changes bring significant adjustments in both the rate of relief and how it is claimed. Navigating these changes can be challenging, but expert advice can help simplify the process and ensure compliance.

Zest R&D Tax Advisors can help you determine which scheme is most beneficial for your business. They assist in identifying all eligible costs, ensuring your claim is accurate and meets HMRC's requirements. Their fixed-fee structure, based on a percentage of your successful claim, ensures you receive dedicated support - from preparing forms to coordinating with your accountant on financial records.

Accurate records, professional guidance, and staying informed about legislative updates are key to making the most of your R&D claim. By focusing on these areas, you can maximise your benefit while remaining fully compliant with HMRC's evolving regulations.

FAQs

What are the key differences between RDEC and ERIS in terms of eligibility and relief rates?

The Research and Development Expenditure Credit (RDEC) is designed for larger companies - those with more than 500 employees, a turnover exceeding €100 million, or a balance sheet total above €86 million. On the other hand, the Enterprise Relief for Innovative Startups (ERIS) caters to small and medium-sized enterprises (SMEs), providing support to businesses that fall below the RDEC thresholds.

Each scheme comes with its own relief rates and eligibility requirements, so it’s crucial to evaluate which one aligns with your business. A clear understanding of these distinctions can help you make the most of the support available for your R&D efforts.

What are the key differences in how tax credits are treated under RDEC and ERIS, and how do these affect financial statements?

The way tax credits are treated under the RDEC (Research and Development Expenditure Credit) and the ERIS (Enhanced R&D Incentive Scheme) varies significantly, especially in how they appear in financial statements.

With RDEC, the credit is taxable and typically presented 'above the line' in the profit and loss account. This means it’s recorded as income, which can boost EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortisation). This approach makes the benefit more visible to stakeholders and investors, as it directly impacts profitability metrics.

On the other hand, ERIS works differently. It offers enhanced tax relief by either reducing taxable profits or creating a tax credit. This is shown 'below the line' as a reduction in the corporation tax liability instead of being recorded as income. While the financial benefit is still valuable, it’s less direct in its impact on headline financial figures.

For businesses, understanding these distinctions is essential to ensure their financial reporting aligns with the right scheme. If navigating these rules feels complex, Zest R&D Tax Advisors are well-equipped to provide expert guidance and help you stay compliant with UK regulations.

How can businesses ensure compliance with the updated R&D tax relief rules starting from 1 April 2024?

To align with the updated R&D tax relief rules coming into effect on 1 April 2024, businesses need to take a proactive approach. Start by reviewing the new requirements and making any necessary adjustments to your processes. This includes keeping thorough records of eligible R&D activities and related expenses, ensuring all claims adhere to the updated guidelines, and staying aware of any new reporting requirements.

Seeking advice from professionals can make this transition smoother. Experts, such as Zest R&D Tax Advisors, can offer tailored guidance to help you submit compliant claims and optimise your tax relief opportunities.

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