Every company in a group makes its own R&D claim, in its own corporation tax return. There is no group claim. What group structure changes is everything around that claim: whether the company qualifies for the more generous of the two schemes, how much of what it pays a sister company counts, who owns the claim when one group member does the work for another, and where the credit or the loss lands. Get one of those wrong and the cost is rarely a smaller claim. It is usually the whole claim, in one company.
These rules apply to accounting periods beginning on or after 1 April 2024.
Does a group make one R&D claim or several?
Several: one for each claiming company. The claim sits in that company’s own return for its own accounting period, supported by its own Additional Information Form.
The claim notification rule works the same way, and this is where groups lose claims. A company claiming for the first time, or one that has not claimed in the three years ending with the notification deadline, must notify HMRC within six months of the end of its period of account. That history belongs to the company, not the group: a sister with a decade of claims behind it counts for nothing when a newly incorporated development subsidiary comes to claim, and a notification filed in the parent’s name does not cover the subsidiary.
How does group structure change who can claim?
In two places. The size test comes first — the SME definition, run on the group rather than the company. A linked enterprise’s staff, turnover and balance sheet are added in full and a partner enterprise’s in proportion, as set out in how linked and partner enterprises affect an R&D claim and what happens when a company outgrows the definition. Under the merged scheme the answer changes nothing, because the rate is the same at every size. The size test decides one thing: access to ERIS, and with it the difference between 26.97p and 16.2p per £1 of qualifying spend.
Intensity is the second test, and it aggregates differently. A company connected with any other company runs the 30% intensity ratio on the combined figures of itself and every company connected with it, on both sides of the fraction. Payments and other transfers of value between them come out of the total, so an intra-group recharge is not counted twice — but qualifying R&D expenditure still counts on the R&D side even where it takes that form, so the exclusion moves the ratio one way only: up. Our ERIS intensity calculator runs the sum.
Three features catch groups out. Connected companies count wherever they are based, so an overseas trading company with heavy non-R&D costs dilutes a UK development company’s ratio. Connection on a single day counts for the whole period, so a subsidiary bought or sold mid-year stays in the numbers. And where a connected company’s accounting period does not line up with the claimant’s, its expenditure has to be attributed to the claimant’s period on a reasonable basis, applied consistently.
One relief softens the year of a deal: a company that met the condition and claimed for its most recent prior twelve-month period keeps ERIS for the period after, whatever the aggregation now shows.
Restructuring in order to pass is not a plan. A transaction attributable to arrangements whose main purpose is to obtain relief the company would not otherwise get, or more of it, is ignored.
Which company claims when one group company does the R&D for another?
The contract decides, exactly as it does between unrelated parties. Where a group company commissions work and intended or contemplated the specific R&D when the contract was made, that company holds the claim; where it did not, the company doing the work claims in its own right. The test is the one set out in contracted-out R&D: who claims?, and an intercompany agreement gets no easier treatment than a third-party one.
Groups have one option unrelated parties do not. Two companies in the same group can jointly elect that, for R&D one of them contracts out to the other, the company contracting it out is treated as ineligible — which moves the claim to the company doing the work. It stays eligible for everything else it does. A second limb matters for shared-service groups: where work done under the contract is R&D seen from the customer’s side but would not be R&D in the contractor’s own hands, it is treated as the contractor’s R&D.
The election is made by written notice to HMRC, which expects it before or with any claim that depends on it. Either company can revoke it, and it ends once they are no longer in the same group. There is no limit on the number, and “same group” means the group relief group — the 75% relationship already tested for loss surrenders.
The alternative is consolidation upwards: where the parent commissioned the work and contemplated the R&D, the claims gather there instead. The failure case is leaving it open, so that two companies each assume the claim is theirs.
How much of a payment to a connected group company qualifies?
Not 65%. Where the parties are connected, the flat percentage gives way to a cost test, which can land above or below it.
The qualifying amount is the lower of what was paid and the contractor’s own relevant expenditure on the work — broadly its staffing, software, data licence, cloud and consumables costs, and only where the work is done in the UK or meets the overseas conditions. The margin on an intercompany recharge is stripped out. Pricing the recharge at arm’s length does not rescue it: HMRC’s manual says plainly that transfer pricing rules do not displace the limits on subcontracted R&D between connected persons. Externally provided workers follow the same shape, where you, the provider and the business that actually employs the workers are all connected: the claim is capped at that business’s staffing cost of supplying them. Which costs qualify sets out both tests in full.
A timing condition sits alongside the limit, and mixed year ends are where it fails. The supplying company must have brought the whole payment and all of its relevant expenditure into account under generally accepted accounting practice for a period ending no more than twelve months after the claimant’s period of account. Where a subsidiary’s accounts run well behind, that window can close before the figures exist — and a payment that fails does not fall back to 65%; it drops out altogether.
The rule runs the other way too. Two unconnected parties can jointly elect to be treated as connected, replacing the flat 65% with the lower of the payment and the contractor’s relevant expenditure — worth having wherever that cost base exceeds 65% of the price. The election covers all payments under the same contract, and must reach HMRC in writing within two years of the end of the accounting period in which the contract was entered into. It is irrevocable, and the deadline cannot be extended.
Can the credit be moved to another group company?
Under the merged scheme, yes, in two ways.
The credit runs through a fixed sequence. It first discharges the claimant’s own corporation tax for the period. Then the notional tax deduction comes off, the PAYE cap is applied, and what survives clears corporation tax for the company’s other periods. Whatever is left at that point can be surrendered to any other member of the group. The notional tax withheld earlier in the sequence can be surrendered as well.
Both surrenders behave the same way in the recipient’s hands. They discharge that company’s corporation tax and nothing more — they never become cash there. Anything the recipient cannot use comes back to the claimant: the credit continues down the remaining steps, and the notional tax is carried forward against the claimant’s own corporation tax in a later period. Where the two companies’ accounting periods do not coincide, the amount is apportioned across the overlap.
The surrender does not affect either company’s profits or losses, and is not a distribution. Since 26 November 2025, where the two companies have agreed the surrender and the payment does not exceed the credit surrendered, that payment sits outside the corporation tax computation on both sides. A group can therefore settle a surrender in cash without a tax consequence, provided it pays no more than the credit it received.
The ERIS credit is different. It is paid to the company that claimed it or set against that company’s own corporation tax, and there is no route to surrender it to a group member.
Group relief or the ERIS credit?
A loss can do one job or the other, and a loss-making R&D-intensive subsidiary inside a profitable group has a real decision to make.
The loss available to surrender for the ERIS credit is what remains after other relief. It is reduced by any loss already surrendered as group relief, and by relief the company obtained or could have obtained against its own other profits of the same period — so intercompany interest income quietly shrinks it whether or not a claim is made.
The arithmetic is worth setting out. Take £100,000 of qualifying R&D spend in a company with no other income, and assume it is a loss-making SME that passes the intensity test, that the PAYE cap does not bite, and that a sister company has profits taxed at the 25% main rate. The 86% additional deduction produces a trading loss of £186,000. Surrendered as group relief to that sister, the loss saves £46,500 of tax there. Surrendered instead for the ERIS credit, it produces £26,970 of cash, free of tax, in the company that did the work.
Group relief is the larger number, but only if the recipient genuinely pays at the main rate, the group pays the loss-maker for the surrender, and the loss-maker can wait. For a pre-revenue subsidiary funded round by round, cash in its own account on a known date can be worth more than a bigger saving elsewhere. The loss can also be split, part group-relieved and part surrendered for the credit. Model it before the returns are filed, because filing the returns is what fixes the choice.
How does the PAYE cap work across a group?
The PAYE cap of £20,000 plus 300% of relevant PAYE and National Insurance cannot be read off one company’s payroll. Where a connected company supplies externally provided workers or performs contracted-out R&D, its PAYE and NIC attributable to that work is added to the claimant’s figure, and the supplier deducts the same amount from its own. The payroll counts once, in the claiming company.
The exemption from the cap has a group-shaped trap. Its second condition limits connected-party subcontractor and externally provided worker spend to 15% of the claimant’s qualifying expenditure, and a holding company claiming for R&D performed by a group service company that employs all the staff fails that limb comfortably, whatever its intellectual property position.
Is money from a parent company a grant?
No. The subsidised expenditure rules were abolished for accounting periods beginning on or after 1 April 2024, so neither a grant nor intragroup funding reduces a claim; grant funding and R&D tax relief covers what replaced them. The live question is who claims. Money from a parent is either funding, and the subsidiary claims for its own work, or payment under a contract for R&D, and the contracted-out rules apply. The paperwork behind the transfer settles which.
Talk it through with a chartered adviser
Group claims fail on structure as readily as on science: a missed notification for one subsidiary, a recharge claimed at 65% when the connected-party limit applied, a surrender nobody made. LimestoneGrey is a firm of Chartered Tax Advisers and Chartered Accountants, regulated by ICAEW, specialising in R&D tax relief. Every claim is signed off by a chartered adviser, and enquiry support is included as standard.
If more than one company in your group incurs R&D spend, get in touch before the next year end.
Sources
- CTA 2009 s1045ZA — the intensity ratio taken across the company and every company connected with it; subsection (6)(a) excludes a payment or other transfer of value to a connected company from total relevant expenditure, while subsection (7)(a) keeps it in relevant R&D expenditure; connection on any day in the period.
- CTA 2009 s1044 — the ERIS conditions, including the one-year grace for a company that obtained relief for its most recent prior twelve-month accounting period having met the intensity condition in that period.
- CIRD123000: ERIS intensity condition — connected companies counted “whether based in the UK or elsewhere”, and attributing a connected company’s expenditure to the claimant’s period where the periods differ.
- CTA 2009 s1112I — transactions attributable to arrangements with a main purpose of obtaining or increasing relief are disregarded.
- CTA 2009 s1142(5)–(6) — the group election treating the company contracting R&D out as ineligible, and deeming the contractor’s activity to be R&D; written notice, revocable, ending once the companies are no longer in the same group.
- CIRD164000: the group election — HMRC’s guidance that the election is made before or with the claim that depends on it, with no limit on the number made, and that consolidating claims in the customer is the alternative.
- CTA 2009 s1140A — “same group” for R&D means the same group as for group relief under Part 5 of CTA 2010.
- CTA 2009 s1134 — the connected contractor limit of the lower of the payment and the contractor’s relevant expenditure, the cost categories that expenditure covers, its restriction to R&D undertaken in the UK or qualifying overseas R&D, and the twelve-month accounts condition.
- CTA 2009 s1135 — the joint election to be treated as connected: made for all payments under the same contract, by written notice within two years of the end of the accounting period in which the contract was entered into, and irrevocable.
- CTA 2009 s1129 and s1130 — the externally provided worker limit, which applies only where the company, the staff provider and each staff controller are all connected, capping the claim at the aggregate relevant expenditure of each staff controller; and the equivalent election.
- CIRD138000: contractor payments — 65% for unconnected contractors, the connected-party limit, and the two-year election deadline with no provision for extension.
- CIRD192000: connected persons — connection takes its meaning from CTA 2010 s1122, and transfer pricing rules do not displace the limits on expenditure for subcontracted R&D between connected persons.
- CTA 2009 s1042I — the seven steps: the notional tax deduction at step 2, the PAYE and NIC cap at step 3, and group surrender of the remaining credit at step 5.
- CTA 2009 s1042L — surrender of the notional tax deduction to a group member, and carry-forward against the company’s own corporation tax where it is not surrendered.
- CTA 2009 s1042N — apportionment across overlapping accounting periods, any remainder treated as not surrendered so that it returns to the steps in s1042I or to the carry-forward in s1042L(3), and the surrender affecting neither company’s profits or losses and not being a distribution.
- Finance Act 2026 s31 — a payment made under an agreement about the surrender, not exceeding the credit surrendered, is neither taken into account in either company’s profits nor treated as a distribution; the amendment applies to payments made on or after 26 November 2025.
- CTA 2009 s1055 and s1056 — the ERIS surrenderable loss reduced by losses surrendered as group relief and by same-period relief obtained or obtainable against the company’s own profits.
- CTA 2009 s1054, s1060 and s1061 — the ERIS credit is paid to the claimant company or applied against that company’s own corporation tax, and is not income of the company for tax purposes; Chapter 2 provides no group surrender.
- CTA 2009 s1112B — the cap itself: £20,000 plus three times relevant PAYE and NIC liabilities for payment periods ending in the accounting period.
- CTA 2009 s1112C — connected companies’ PAYE and NIC added to the claimant’s cap figure and deducted from the supplier’s.
- CTA 2009 s1112E — the 15% limit on connected-party subcontractor and externally provided worker spend in the cap exemption.
- CTA 2009 s1142D — payment of the credit to the company rather than a nominee, with an exception for a connected person.
- CTA 2009 s1042C and s1142A — the claim notification requirement, the three-year claim history ending with the last day of the notification period, and the notification period ending six months after the end of the period of account.
- FA 1998 Sch 18 para 83B — an R&D claim is made by being included in the claimant company’s own company tax return.