The value of an R&D tax relief claim depends on two things: how much qualifying expenditure the company has, and what tax position it is in when the claim lands. This page works five examples through the arithmetic in full, using the rates in force for accounting periods beginning on or after 1 April 2024. Every company here is illustrative and the figures are deliberately round.
The last example is the one most worked-example pages leave out: a project that does not qualify, and therefore produces no claim at all.
The examples at a glance
| Example | Scheme | Tax position | Qualifying spend | Net benefit | Per £1 |
|---|---|---|---|---|---|
| 1 | Merged scheme | Profitable, 25% main rate | £400,000 | £60,000 | 15p |
| 2 | Merged scheme | Profitable, 26.5% marginal rate | £100,000 | £14,700 | 14.7p |
| 3 | Merged scheme | Loss-making | £250,000 | £40,500 in cash | 16.2p |
| 4 | ERIS | Loss-making, R&D-intensive SME | £300,000 | £80,910 in cash | 26.97p |
| 5 | Neither | Any | Nil (£180,000 of non-qualifying spend) | Nil | Nil |
Example 1: a profitable company under the merged scheme
An illustrative engineering company with a 31 March year end, taxable profits comfortably above £250,000 and so paying corporation tax at the 25% main rate. Its qualifying R&D expenditure for the period is £400,000.
The merged R&D Expenditure Credit pays a credit of 20% of qualifying expenditure, and that credit is itself taxable income.
- Qualifying expenditure: £400,000
- Gross credit at 20%: £80,000
- Corporation tax on the credit at 25%: £20,000
- Net benefit: £60,000, or 15p per £1 of qualifying spend
The £80,000 is recognised in the accounts before the tax charge, so it increases pre-tax profit as well as reducing the tax bill. The tax charge on it is why 20p of headline credit is worth 15p in the hand.
A company paying corporation tax at the 19% small profits rate runs the same sum with a smaller deduction: £80,000 less £15,200 of tax, leaving £64,800, or 16.2p per £1.
Example 2: the marginal-rate case
The 25% main rate and the 19% small profits rate are not the only two answers. Where a company’s augmented profits — broadly its taxable profits, with the £50,000 and £250,000 limits divided between associated companies — fall between £50,000 and £250,000, marginal relief applies and the effective rate on the top slice of profit is 26.5%.
An illustrative software company sits in that band and has £100,000 of qualifying expenditure.
- Qualifying expenditure: £100,000
- Gross credit at 20%: £20,000
- Corporation tax on the credit at 26.5%: £5,300
- Net benefit: £14,700, or 14.7p per £1
This is the lowest outcome the merged scheme produces, assuming the credit does not itself carry the company out of the band. The full range runs from 14.7p to 16.2p per £1, and where a company falls within it turns on its profit position for the period, not on its size or sector.
Example 3: a loss-making company under the merged scheme
An illustrative medtech company, loss-making for the period, with £250,000 of qualifying expenditure and relevant PAYE and National Insurance contributions of £120,000. It is not R&D-intensive enough for ERIS, so it claims under the merged scheme.
Loss-makers receive the credit in cash rather than as a reduction in a tax bill, after HMRC applies a set of steps laid down in the legislation. The practical effect for most is a deduction of notional tax — tax calculated on the credit even though there are no profits to pay it from — at the 19% small profits rate.
- Qualifying expenditure: £250,000
- Gross credit at 20%: £50,000
- Notional tax at 19%: £9,500
- Payable credit: £40,500 in cash, or 16.2p per £1
Then the cap. The cash payable is limited to £20,000 plus 300% of relevant PAYE and NIC, which here gives £380,000. The £40,500 sits well inside it, so the cap does nothing. A company with a small UK payroll and a large subcontracted R&D budget can get a different answer, and where the cap does bite under the merged scheme the restricted amount is carried forward as a credit for the next accounting period rather than lost.
Note that this loss-maker does better per £1 than the profitable company in example 1. With no profits chargeable at the main rate, the notional tax comes off at 19% rather than 25%. The £9,500 is not thrown away either: it carries forward against future corporation tax, or can be surrendered to another company in the group.
Example 4: a loss-making R&D-intensive SME under ERIS
An illustrative biotech company, pre-revenue and loss-making, spending £800,000 in the year of which £300,000 is relevant R&D expenditure. Its intensity is £300,000 divided by £800,000, which is 37.5% — above the 30% threshold, so it claims Enhanced R&D Intensive Support rather than the merged scheme.
ERIS works differently. Instead of a taxable credit, the company deducts an additional 86% of its qualifying expenditure from taxable profits on top of the normal 100%, then surrenders — hands to HMRC in exchange for cash — the resulting loss at 14.5%.
- Qualifying expenditure: £300,000
- Total deduction at 186%: £558,000
- Payable credit at 14.5% of the surrendered amount: £80,910 in cash, or 26.97p per £1
The ERIS credit is not taxable, so nothing is clawed back from that figure. The same £300,000 under the merged scheme would have produced £48,600, so passing the intensity test is worth £32,310 to this company.
Three conditions sit behind the headline. The full rate assumes losses at least equal to £558,000; where the company’s losses are smaller, the surrenderable amount falls and the credit falls with it. The intensity ratio is worked across the company and its connected companies together, on both sides of the fraction; the ERIS intensity calculator models that.
And the PAYE cap applies here as it does under the merged scheme, but the consequence is harsher: £20,000 plus 300% of relevant PAYE and NIC, with no carry-forward of the restricted credit, so loss surrendered above the capped amount is written off for nothing. An ERIS claim has to be sized to the cap before it is filed. Here the full £80,910 is payable only if relevant PAYE and NIC reach just over £20,300, since the cap is £20,000 plus three times that figure. A pre-revenue company running most of its programme through subcontractors can fall short of that.
Example 5: the project that produces no claim
An illustrative manufacturer replaces its production planning system, at a cost of £180,000 in staff time and consultants. The finance director asks what it is worth as an R&D claim.
Nothing.
The work was configuration and data migration: the platform, the interfaces and the scheduling logic were all used as the vendor documents them, assembled to an established pattern. However hard the work was, a competent professional in the field could have worked out how to do it from existing knowledge, so there was no scientific or technological uncertainty to resolve. Had the integration itself been the problem — had the field been unable to predict whether those systems would behave as a whole — the answer might have been different, and that is the question we ask first. There is no advance in the field’s knowledge or capability either: the company learned something new, but the field did not.
Both tests come from the definition of qualifying R&D, and neither is met by difficulty, expense or commercial novelty.
- Total project cost: £180,000
- Qualifying expenditure: nil
- Claim value: nil
That answer is worth as much as the four above it. A claim built on this project would be found in a compliance check, and HMRC checked around one in six R&D claims in 2023-24, its latest published figure. Some of the most useful work we do on a first engagement is telling a company which of its projects to leave out.
What these examples do not settle
Each one starts from a figure for qualifying expenditure, which is where the real work sits. Which projects pass the qualifying test, which costs fall inside the six qualifying categories, how staff time is apportioned, and which party to a contract is entitled to claim: those questions decide the number that goes into the 20% or the 186%. The arithmetic on this page is the easy part.
For an estimate on your own figures, use the claim value calculator. For periods beginning before 1 April 2024, the rates were different and are set out in rates by year.
Talk it through with a chartered adviser
Worked examples show how the relief is calculated. They do not tell you what your own claim is worth, because that depends on judgements about your projects and costs that no table can make for you. LimestoneGrey is a firm of chartered tax advisers and chartered accountants specialising in R&D tax relief regulated by ICAEW, every claim we prepare is signed off by a chartered adviser before it reaches HMRC, and enquiry support is included as standard.
If you want a considered view on what your position is worth, get in touch, or start with the full R&D tax relief guide.
Sources
- Merged scheme & ERIS guidance — the 20% merged credit, the ERIS 186% deduction and 14.5% payable credit, the 30% intensity test and the PAYE cap.
- Corporation Tax rates and allowances — the 25% main rate, the 19% small profits rate, and marginal relief between the £50,000 lower limit and the £250,000 upper limit.
- CTA 2010 s18D — subsection (3), dividing the £50,000 and £250,000 limits by one plus the number of associated companies.
- CIRD140000: PAYE cap — the £20,000 plus 300% cap.
- CTA 2009 s1042J — the amount restricted by the cap added to the credit for the next accounting period.
- DSIT Guidelines: meaning of R&D for tax purposes — the advance, uncertainty and competent professional tests behind example 5.