RDEC vs ERIS: Key Differences

The UK’s R&D tax relief system changed in April 2024, introducing two schemes: the merged RDEC and ERIS. Here’s what you need to know:

• RDEC: Applies to all companies, offering a 20% expenditure credit. After tax, the benefit is around 15p-16.2p per £1 spent. Profitable and loss-making businesses can claim.
• ERIS: Designed for loss-making SMEs with at least 30% of total spending on R&D. Provides up to 27p per £1 spent through a 14.5% tax credit on surrenderable losses.

Key Points:

1. Choose based on your company’s size, profitability, and R&D intensity.
2. ERIS offers higher returns but is limited to specific SMEs.
3. RDEC is taxable but broader in eligibility.

Quick Comparison:

Evaluate your R&D spending and financial position to maximise your claim.

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RDEC Eligibility Requirements

The merged RDEC scheme is available to all companies trading in the UK and paying UK Corporation Tax, as long as their projects meet the standard definition of R&D. This means the work must aim to achieve a scientific or technological advance by addressing uncertainty in these fields.

From April 2024, there’s a significant update: grant-funded R&D projects now qualify for the full 20% credit. Previously, SMEs receiving notified State Aid or grants faced a less generous regime that reduced their qualifying expenditure. With the new scheme, this restriction no longer applies. As Innovation Tax explains:

The merged scheme effectively combines the best elements of the old RDEC and SME regimes into a single R&D Expenditure Credit system open to all companies.

SMEs conducting R&D as subcontractors for large companies can also claim under RDEC, regardless of whether the work is grant-funded. However, large companies generally cannot claim for subcontracted R&D unless the subcontractor is a qualifying body, such as a university or charity.

Companies That Qualify for RDEC

To qualify for the merged RDEC scheme, a company must be actively trading and subject to UK Corporation Tax. The R&D project must aim to achieve a scientific or technological advance rather than simply applying existing knowledge. Both profit-making and loss-making companies are eligible, although the net benefit depends on profitability. There are also specific provisions for subcontracted R&D work.

The merged RDEC serves as the default scheme for most businesses. However, loss-making SMEs that meet the 30% R&D intensity threshold can choose to opt into ERIS. Importantly, companies cannot claim under both schemes for the same expenditure. SMEs that qualified for ERIS in the previous 12-month accounting period benefit from a grace period, allowing them to claim ERIS for an additional year, even if their R&D expenditure later falls below the 30% threshold.

Eligible Costs Under RDEC

The rules for qualifying expenditure under the merged RDEC and ERIS schemes are identical. HM Revenue & Customs has clarified:

The qualifying expenditure rules for the two new schemes are identical although the credit calculation differs.

Here’s a breakdown of the key categories of eligible costs:

Both schemes include a PAYE cap to prevent abuse. This cap is generally set at £20,000 plus 300% of the company’s relevant PAYE and National Insurance contributions. Companies may qualify for an exemption if they are creating or managing intellectual property and if their R&D expenditure on connected parties is less than 15% of their total R&D spend.

Overseas expenditure is now tightly restricted. To qualify for relief, R&D activities must typically take place in the UK. Exceptions are made only when it is "geographically, environmentally, or socially necessary" to conduct work abroad. For example, this could apply to specific clinical trials or deep-sea research. Cost savings or staff availability are not valid reasons for claiming overseas R&D costs.

These rules establish the foundation of the merged RDEC scheme, creating a clear framework for businesses before comparing it with the ERIS scheme.

ERIS Eligibility Requirements

The Enhanced R&D Intensive Support (ERIS) scheme is specifically designed for loss-making SMEs that allocate a significant portion of their spending to R&D activities. Unlike the broader merged RDEC scheme, which is open to all companies, ERIS focuses on a select group of businesses meeting strict financial and R&D-related criteria.

To qualify for ERIS, your company must meet the SME definition as outlined in the Corporation Tax Act 2009, be actively trading, and be loss-making before factoring in the additional R&D deduction. HM Revenue & Customs explains:

Enhanced support under ERIS is only available to R&D intensive SMEs which are, before taking the additional deduction, making a trading loss for tax purposes.

A critical condition is that at least 30% of your total expenditure must be qualifying R&D costs. HM Revenue & Customs further clarifies:

A company meets the intensity condition if its... relevant R&D expenditure is at least 30% of its total expenditure (including that of any connected companies).

For companies connected to others, the 30% threshold applies to combined spending. Additionally, there’s a grace period: if your business met the 30% threshold in the previous 12 months and made a valid claim for SME relief or ERIS during that time, you remain eligible even if current spending drops below the threshold.

Companies That Qualify for ERIS

ERIS is specifically tailored for R&D-intensive SMEs operating at a loss. The 30% expenditure threshold is calculated based on your company's "total relevant expenditure." This includes:

• Costs compliant with GAAP that contribute to profit or loss before tax
• Pre-trading costs eligible for relief under s1045 CTA 2009
• Deductions under s1308 CTA 2009

However, it excludes amortisation added back under s1308 CTA 2009 and payments or transfers to connected companies.

Your "relevant R&D expenditure" includes all costs eligible for R&D relief during the period, even if you don’t submit a claim. This encompasses expenses like staff, software, consumables, externally provided workers, and subcontracted R&D.

To illustrate, Christopher Toms from RandDTax shared an example in July 2025: A company with £200,000 in qualifying R&D expenditure and a pre-R&D loss of £78,000 calculates an additional 86% deduction of £172,000. This results in a total loss of £250,000 (£78,000 + £172,000). Since the enhanced loss (£250,000) is less than the enhanced expenditure (£372,000), the surrenderable loss is £250,000, leading to a payable tax credit of £36,250 (14.5% of £250,000).

These rules help businesses decide whether ERIS or the merged RDEC scheme is the better fit.

When to Choose RDEC Over ERIS

Deciding between ERIS and RDEC depends largely on your company’s profitability and strategic goals. Even if your business qualifies for ERIS, you’re not required to claim it. Instead, you can opt for the merged RDEC scheme, though you cannot claim under both schemes for the same expenditure.

The main reason to switch from ERIS to RDEC is a change in profitability. If your company becomes profit-making, you must transition to the merged RDEC scheme, as ERIS is only available to loss-making SMEs. This shift isn’t optional - it’s mandatory.

There are also strategic factors to consider. The merged RDEC scheme offers a 20% taxable expenditure credit, while ERIS provides a 14.5% payable tax credit on surrenderable losses. Additionally, under RDEC, any R&D credit exceeding the PAYE cap can be carried forward to the next accounting period. ERIS, on the other hand, does not allow credits to exceed the PAYE cap, which may make RDEC more appealing for companies with high R&D spending but limited PAYE liabilities.

RDEC vs ERIS: Financial Benefits Compared

Relief Rates: RDEC vs ERIS

The merged RDEC scheme provides a 20% expenditure credit on qualifying R&D costs. However, this credit is taxable as trading income. After accounting for Corporation Tax, the effective net benefit is approximately 15% for companies in profit and up to 16.2% for those operating at a loss. By comparison, ERIS offers a more generous structure for eligible SMEs.

Under ERIS, SMEs benefit from an 86% additional deduction - resulting in a total deduction of 186% of qualifying costs. Additionally, there’s a non-taxable 14.5% tax credit, which translates to roughly 27p per £1 spent.

Lewis Songaila, an R&D Tax Expert at GrantTree, highlights this advantage:

ERIS is substantially more generous than the other R&D Tax schemes available, offering 45% more funding than the SME scheme and 67% more than both the old Research and Development expenditure credit (RDEC) and the new merged scheme.

However, for companies that break even, ERIS may only deliver around a 12.5% benefit. This is because, without trading losses to surrender, only the 86% enhancement applies. In such cases, the merged RDEC scheme’s potential 16.2% net benefit could be more appealing. SMEs nearing the 30% R&D intensity threshold should carefully evaluate both options, especially if their losses are limited. The table below illustrates the key differences between the two schemes.

RDEC and ERIS Benefits Comparison Table

Both schemes share the same PAYE cap to prevent misuse. Additionally, they generally limit claims for overseas R&D activities, requiring such work to be conducted in the UK unless geographic or legal constraints make it unavoidable.

Choosing the Right Scheme for Your Business

Deciding between RDEC and ERIS hinges on factors like profitability, the intensity of your R&D activities, and your location. For loss-making SMEs, ERIS is the only option, while profit-generating companies must use the merged RDEC scheme.

For SMEs operating at a loss, ERIS becomes an option if their qualifying R&D expenditure makes up at least 30% of their total spending. However, it's important to know that the same expenditure cannot be divided between the two schemes. Beyond these basic criteria, businesses also need to consider regional rules and the ease of managing claims.

Companies in Northern Ireland face additional considerations. SMEs based there and claiming ERIS enjoy more lenient rules on payments to overseas contractors and externally provided workers. However, the extra benefit they receive (the difference between the ERIS claim and the equivalent RDEC relief) is capped by a €300,000 de minimis State aid limit over a rolling three-year period. Northern Ireland businesses not involved in trading goods or electricity market activities can opt out of these specific provisions, but doing so imposes restrictions on overseas spending. This aid limit is a key factor for Northern Ireland companies when evaluating their overall benefits, adding another layer to the choice between RDEC and ERIS.

When RDEC Is the Better Option

The merged RDEC scheme fits companies that are profitable or SMEs that don’t meet the 30% R&D intensity threshold. For businesses that are operating at break-even or whose R&D spending is lower compared to total expenditure, RDEC is the logical choice. Additionally, Northern Ireland companies with substantial overseas R&D spending but low R&D intensity may find RDEC easier to manage. It bypasses the €300,000 de minimis aid limit while still offering relief. These considerations tie back to the core factors of profitability and R&D intensity.

When ERIS Is the Better Option

ERIS offers much greater support for loss-making SMEs with high R&D intensity. Eligible companies can claim a total deduction of 186% of qualifying costs - this includes the standard 100% deduction plus an 86% enhancement - and receive a 14.5% non-taxable payable credit. For SMEs with R&D expenditure exceeding 30% of their total spending and trading losses, ERIS delivers the maximum cash benefit.

For Northern Ireland SMEs engaged in goods trading or electricity-related activities, ERIS provides unrestricted relief on overseas contractor payments. However, businesses must ensure that the additional benefit from ERIS stays within the €300,000 de minimis State aid cap over a three-year rolling period. These elements underscore the direct link between profitability, R&D intensity, and the choice of the most suitable scheme.

Summary

The merged RDEC scheme and ERIS cater to different types of businesses, though both follow the same rules for qualifying expenditure. RDEC is aimed at profit-making SMEs and all large companies, providing a 20% expenditure credit on qualifying R&D costs. On the other hand, ERIS is tailored for loss-making SMEs that spend at least 30% of their total expenditure on R&D. Eligible ERIS claimants can benefit from a total deduction of 186% of qualifying costs or a 14.5% non-taxable payable tax credit on surrenderable losses.

For every £1 spent on qualifying R&D, ERIS offers approximately 27p, while the merged RDEC scheme provides a net benefit of around 15% to 16.2%, depending on the company’s profitability. Both schemes are subject to the PAYE cap, though certain exemptions may apply.

Knowing which scheme applies to your business is crucial for maximising relief. Profit-making SMEs must use RDEC, while loss-making SMEs should assess their R&D intensity to determine if they qualify for the more generous ERIS rates. It’s important to note that expenditure cannot be split between these two schemes, as they are mutually exclusive. This decision forms the basis for ongoing R&D assessments.

Monitoring your R&D intensity regularly is essential to ensure you are using the most beneficial scheme. If your R&D intensity fluctuates, meeting the 30% condition in the previous 12 months may still allow you to qualify for ERIS under grace period rules. For companies in Northern Ireland, additional factors, such as overseas contractor payments, add further complexity to the decision-making process.

Ultimately, the choice of scheme has a direct impact on cash flow and planning. Whether you’re a pre-profit startup heavily investing in innovation or an established business with consistent R&D activity, selecting the right scheme ensures you maximise your R&D relief.

FAQs

How do I check if my R&D intensity is 30% for ERIS?

To determine if your R&D intensity meets the 30% requirement for ERIS, you need to check if your qualifying R&D expenditure makes up at least 30% of your total eligible expenditure for the relevant period. If your business is part of a group, ensure you include the combined figures from all connected companies in your calculations.

What happens if my company moves from loss-making to profitable?

If your company moves from being loss-making to turning a profit, you may no longer meet the criteria for ERIS. In this case, you might need to transition to the merged RDEC scheme, which is open to both profit and loss-making businesses. However, the eligibility requirements and relief rates for these schemes are not the same, so it's crucial to thoroughly assess these differences.

Can I claim for overseas R&D work under the new rules?

Yes, it's possible to claim for research and development (R&D) work conducted overseas, but there are restrictions to consider. Starting from April 2024, costs related to overseas R&D activities will no longer qualify for relief under the RDEC (Research and Development Expenditure Credit) and ERIS (Enhanced Relief for SMEs) schemes.

It’s crucial to ensure your claims align with these updated regulations to avoid any complications.

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