Companies within the charge to UK corporation tax, carrying on a trade to which the R&D relates. Both current schemes put it the same way: only companies with a trade chargeable to UK corporation tax can claim the merged R&D expenditure credit or ERIS. That rules out sole traders and ordinary partnerships, whose members pay income tax. A company that has not yet started trading is not automatically shut out, but its only route runs through ERIS. Nor does it rule out an overseas company with a UK permanent establishment. A handful of bodies are excluded by name; a going concern condition sits on top, and it bites differently under each scheme.
The company condition
“Company” here takes its ordinary corporation tax meaning: any body corporate or unincorporated association, but not a partnership, a local authority or a local authority association. The relief is available to companies within the charge to corporation tax, in respect of profits charged to corporation tax.
This decides most eligibility questions before any technical one arises. R&D tax relief is delivered through the corporation tax computation, so an entity that never files a CT600 has nowhere to put it, and there is no income tax equivalent. A sole trader doing work that would qualify without argument if a company did it still claims nothing: the position is set out in full at can a sole trader claim R&D tax credits.
Some bodies are excluded whatever else they satisfy: a charity, an institution of higher education, a scientific research association and a health service body. The Treasury can add to that list by order. Two further routes can make an otherwise ordinary company ineligible — a group election covering contracted-out R&D, and the transitional rules in Finance Act 2024.
The trade condition, including companies that do not trade yet
The R&D must be relevant R&D: research and development related to a trade the company carries on, or from which it is intended that a trade to be carried on by the company will be derived. The second limb decides whether the R&D is the right kind. It does not, by itself, give a company that has not started trading anything to claim.
Entitlement to the merged scheme requires the company to carry on a trade in the period and the expenditure to be allowable as a deduction in computing the profits of that trade. HMRC states the consequence directly: the credit cannot be claimed until the trade has commenced. A genuinely pre-trading company has one route, and it sits in the ERIS chapter — an election to treat 186% of the qualifying expenditure as a trading loss for the pre-trading period, available since April 2024 only to an SME that also meets the 30% R&D intensity condition or is within its grace year. A pre-revenue biotech or deep tech company usually clears that test comfortably. One that does not, or that is not an SME, has no relief until it starts to trade.
Trading is not the same as selling, and the distinction does more work here than people expect: a company can be trading well before its first sale. HMRC is explicit that carrying out R&D is not necessarily a trade in itself, so the question is whether a trade has begun, not whether revenue has arrived.
Relevant R&D also extends to work that may lead to or facilitate an extension of an existing trade, which covers a trading company developing something adjacent to what it already sells.
Going concern, for the payable element
Both current schemes carry a going concern requirement, and it bites on the cash. A company is a going concern if its latest published accounts were prepared on a going concern basis, that basis did not depend on the company being entitled to R&D relief or a tax credit, and the company is not in liquidation or administration.
Where a company was not a going concern when it made a merged scheme claim, no amount is payable at the final step of the calculation. If the company becomes a going concern again on or before the last day it could amend the claim, the payment is reinstated. Under ERIS, a claim to the additional deduction or the payable tax credit cannot be made at all if the company is not a going concern, and a company that makes a valid claim and then ceases to be a going concern before payment has its claim treated as never made. Companies in genuine distress therefore need to watch the sequencing rather than assume the credit will arrive.
Overseas companies with a UK permanent establishment
A non-UK resident company is within the charge to corporation tax if it carries on a trade in the UK through a UK permanent establishment, and is chargeable on the profits attributable to that establishment. HMRC’s guidance accepts that the R&D relief principles extend, with the necessary modifications, to UK permanent establishments of foreign companies. The permanent establishment has to be within the charge to corporation tax and the R&D has to be relevant to a trade within that charge.
The reverse case has a restriction attached. Expenditure attributable to an exempt foreign permanent establishment of a UK company cannot qualify, so a group that has made the exemption election needs to know where its development work actually sits before it counts on the spend.
What to check next
Meeting these conditions establishes that a company can claim in principle. Which scheme, and what the claim is worth, is separate: which R&D scheme applies to your company walks through it, and a loss-making SME spending heavily on development should look at ERIS, worth up to 26.97p per £1 of qualifying spend against 14.7p to 16.2p under the merged scheme. The project itself then has to meet the definition of R&D, covered in what your company needs to qualify.
If your structure is unusual — a group, a joint venture, a partnership with a corporate member, a UK establishment of an overseas parent — settle the entity question before any work goes into the claim. Ask us and we will tell you where you stand.
Sources
- CIRD111000: new RDEC overview and CIRD121000: ERIS overview — only companies with a trade chargeable to UK corporation tax can claim either scheme; ineligible companies cannot claim; expenditure attributable to exempt foreign permanent establishments cannot qualify.
- CIRD81200: company subject to CT — the meaning of company, relief available only to companies within the charge to CT in respect of profits charged to CT, and the extension of the principle to UK permanent establishments of foreign companies.
- Section 1042, Corporation Tax Act 2009 and CIRD81400: relevant R&D — the meaning of relevant R&D: research and development related to a trade carried on, or from which it is intended a trade to be carried on will be derived.
- Section 1042B, Corporation Tax Act 2009 — the merged scheme entitlement conditions: the company must carry on a trade in the period (Condition A), and the expenditure must be allowable as a deduction in calculating the profits of that trade (Condition B(a)).
- Section 1045, Corporation Tax Act 2009 — the ERIS election to treat qualifying pre-trading expenditure as a trading loss at 186%, available to an SME meeting the R&D intensity condition or its grace year.
- CIRD81450: allowable as a deduction in computing the profit — “RDEC cannot be claimed until the trade has commenced and the expenditure is allowed as a deduction in computing the profits of the trade.”
- CIRD191000: going concern — the going concern definition under CTA09/S1112F and S1112G, and its effect on the payable amounts under both schemes.
- CIRD163000: ineligible companies — charities, institutions of higher education, scientific research organisations and health service bodies, under CTA09/S1142.
- Section 5, Corporation Tax Act 2009 — a non-UK resident company is within the charge to corporation tax where it trades in the UK through a UK permanent establishment.
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.