How to Calculate Your R&D Tax Relief

Introduction

Calculating your R&D tax relief depends on your company size, when your accounting period began, and which scheme you're claiming under. This guide explains the step-by-step calculations for each scheme, including the rates and figures you need to work out how much relief your company can claim.

Which scheme applies to you?

Before calculating your relief, you need to identify which scheme you're claiming under. This depends on when your accounting period began.

For accounting periods beginning before 1 April 2024:

• R&D Expenditure Credit (RDEC) — for large companies and some SMEs
• Small and medium-sized enterprise (SME) tax relief

For accounting periods beginning on or after 1 April 2024:

• The merged scheme — for eligible trading companies
• Enhanced R&D intensive support (ERIS) — for loss-making R&D intensive SMEs

Calculating R&D Expenditure Credit (RDEC)

RDEC is a tax credit available to large companies and some SMEs for accounting periods that began before 1 April 2024.

Calculation steps:

1. Work out all costs that relate to your R&D work

2. Add all costs together

3. Multiply the total by the expenditure credit rate for your accounting period

Expenditure credit rates:

The rate depends on when your costs were incurred:

• 1 April 2015 to 31 December 2017: 11%
• 1 January 2018 to 31 March 2020: 12%
• 1 April 2020 to 31 March 2023: 13%
• 1 April 2023 to 31 March 2024: 20%

Example:

If your company incurred £100,000 in qualifying R&D costs between 1 April 2023 and 31 March 2024, your expenditure credit would be:

£100,000 × 20% = £20,000

Calculating SME tax relief

SME tax relief is for small and medium-sized enterprises claiming for accounting periods that began before 1 April 2024.

Calculation steps:

1. Work out all costs that relate to your R&D work

2. Add all costs together — this is your qualifying expenditure

3. Multiply your qualifying expenditure by 86% — this is the additional R&D relief deduction amount

4. Multiply your qualifying expenditure by 186% — this is the enhanced expenditure amount

Example:

If your SME has £50,000 in qualifying R&D expenditure:

• Additional R&D relief deduction: £50,000 × 86% = £43,000
• Enhanced expenditure amount: £50,000 × 186% = £93,000

If your company has made a trading loss

When your company is loss-making, you can choose to give up a portion of your loss in return for a payable tax credit. You can surrender whichever is lower:

• The enhanced expenditure amount (from step 4), or
• The total trading loss after you've taken the additional R&D relief deduction (from step 3)

The payable tax credit rate depends on whether you meet the "intensity condition" (meaning R&D spending represents a significant portion of your overall expenditure):

• 14.5% if your company meets the intensity condition
• 10% if your company does not meet the intensity condition

The tax credit cannot exceed the PAYE cap unless you're exempt from this cap.

Calculating relief under the merged scheme

The merged scheme applies to eligible trading companies for accounting periods beginning on or after 1 April 2024.

Calculation steps:

1. Work out all costs that relate to your R&D work

2. Add all costs together

3. Multiply the total by 20% to get the expenditure credit amount

Example:

If your company has £80,000 in qualifying R&D costs under the merged scheme:

£80,000 × 20% = £16,000 expenditure credit

The expenditure credit you receive cannot exceed the PAYE cap unless you're exempt.

Calculating Enhanced R&D Intensive Support (ERIS)

ERIS is available to loss-making R&D intensive SMEs with accounting periods beginning on or after 1 April 2024. If you qualify, you can choose between ERIS and the merged scheme, but you cannot claim under both for the same costs.

Calculation steps:

1. Work out all costs that relate to your R&D work

2. Add all costs together — this is your qualifying expenditure

3. Multiply your qualifying costs by 86% — this is the additional R&D relief deduction

4. Multiply your qualifying costs by 186% — this is the enhanced expenditure amount

You can surrender whichever is lower in return for a payable tax credit:

• The enhanced expenditure amount (from step 4), or
• The total trading loss after you've taken the additional R&D relief deduction (from step 3)

The payable tax credit is 14.5% of the amount you've given up. This credit cannot exceed the PAYE cap unless you're exempt.

Example:

If your R&D intensive SME has £60,000 in qualifying expenditure:

• Additional R&D relief deduction: £60,000 × 86% = £51,600
• Enhanced expenditure amount: £60,000 × 186% = £111,600

If your trading loss is £70,000 after taking the additional deduction, you would surrender £70,000 (the lower amount):

Payable tax credit: £70,000 × 14.5% = £10,150

Next steps

Once you've calculated your R&D tax relief, you must submit an additional information form before you claim on your Company Tax Return. You'll need to include the details of your calculation on this form.

Sources

• Work out your Research and Development tax relief

This article provides general guidance based on current HMRC rules. For advice specific to your situation, speak to your accountant.