The intensity condition is the gateway to Enhanced R&D Intensive Support: a loss-making SME (measured before the additional deduction is taken) qualifies only where its relevant R&D expenditure is at least 30% of its total relevant expenditure for the period. Pass it and the claim is worth up to 26.97p per £1 of qualifying spend, tax free; miss it and the company claims the merged scheme instead at 16.2p in cash. Few thresholds in the tax system carry that much value on a single percentage point.
How the ratio is counted
Both sides of the ratio come from the accounts, and neither is quite what people first assume. The numerator is the company’s relevant R&D expenditure; the denominator is its total relevant expenditure — broadly, everything brought into account in calculating profit under generally accepted accounting practice, which is not turnover and includes costs that are disallowable for tax. Payments to connected companies are excluded from the count to stop intra-group recharges being counted twice. And the test is not run on the company alone: connected companies worldwide are counted on both sides of the ratio, so a trading subsidiary with heavy non-R&D costs can dilute the intensity of the group’s development company below 30% even though the development company on its own sits far above it. Group structure decides marginal cases, and it needs checking before the claim is assumed, not after.
The threshold has moved once already, which still confuses claims for earlier periods: it was 40% when R&D-intensive support was introduced for expenditure from 1 April 2023, and fell to 30% for accounting periods beginning on or after 1 April 2024 under ERIS. Guidance written in 2023 quotes the old figure.
The grace period
A one-year grace period protects companies whose intensity dips below 30%, so a single softer year, a hiring round or a revenue spike that swells total spending, does not immediately cost the enhanced rate. Its conditions are specific: the previous accounting period must have been a full twelve months in which the company met the intensity test and actually claimed — eligibility without a claim does not bank the protection — and the company must still be loss-making in the grace year. It runs one way: it holds ERIS for a company that has already qualified, it does not help a company reach the threshold in the first place. Companies hovering near 30% should model the ratio before the year end, while spending decisions can still move it.
What passing is worth
ERIS works through an additional 86% deduction, 186% in total, and a payable credit of 14.5% of the surrenderable loss: on £100,000 of qualifying spend, £100,000 × 186% × 14.5% = £26,970 in cash, assuming sufficient losses and no cap restriction, and the credit is not taxable. The payable credit is subject to the PAYE cap of £20,000 plus 300% of relevant PAYE and NIC — and unlike the merged scheme, where an over-cap amount carries forward, an ERIS credit claim above the cap is invalid, so the cap needs checking before the claim is sized.
Where to go next
Test your own ratio with the ERIS intensity calculator, then read the full ERIS guide for the conditions around it. If your intensity sits anywhere near the line, or your group structure makes the arithmetic unclear, that is precisely the case to take advice on early.
Written by Matthew Jones ACA CTA. Last reviewed July 2026.
Sources
- R&D tax relief: the merged scheme and ERIS — the intensity condition, rates and grace period.
- CIRD123000: ERIS — HMRC’s manual on the intensity calculation.
This page describes the rules as they stood at the review date above, as general information rather than advice on your circumstances. For how that distinction works, see our terms; for an answer on your own facts, talk to us.