This page costs out one ERIS claim in full: £1,120,000 of qualifying expenditure producing a payable credit of £302,064, paid in cash and not taxable, which is 26.97p per £1 of qualifying spend. The company and every figure attached to it are illustrative. The arithmetic is not, and it includes the step most summaries leave out: what a connected company does to the 30% test.
The accounting period runs from 1 April 2025 to 31 March 2026, so the current rules apply. The relief is Enhanced R&D Intensive Support, CTA 2009 Part 13 Chapter 2, at the rates in force for accounting periods beginning on or after 1 April 2024.
What does the company spend, and what qualifies?
Example Therapeutics Ltd is a pre-revenue biotech running preclinical programmes. It is an SME: fewer than 500 staff and either turnover of €100m or less or a balance sheet total of €86m or less, with connected and partner enterprises aggregated. It is loss-making for the period. Throughout that period it is connected with Example Therapeutics Holdings Ltd, a holding company that carries the group’s management and intellectual property administration costs and does no R&D of its own. The connection changes the intensity test, not the credit.
The technical position, in short. The published baseline for this class of biologic held around 90% of potency over eight weeks under refrigeration, and no published excipient system held it at ambient temperature across a twelve-month shelf life. The advance sought was that capability in the field, not a product for the company. The uncertainty was technological: published physical chemistry did not predict whether any buffer and stabiliser combination would hold the molecule’s higher-order structure through repeated thermal cycling, and a competent professional in formulation science could not deduce the answer. Resolution came from successive formulation rounds assessed against accelerated stability data, and this period covers the second and third.
| Cost category | Amount | Qualifying element |
|---|---|---|
| Staffing costs, apportioned to the R&D | £620,000 | £620,000 |
| Externally provided workers, unconnected provider | £120,000 | £78,000 |
| Contractor payments, unconnected, R&D undertaken in the UK | £400,000 | £260,000 |
| Consumable items | £132,000 | £132,000 |
| Software, data licences and cloud computing | £30,000 | £30,000 |
| Qualifying Chapter 2 expenditure | £1,120,000 |
Two of those lines are restricted. Payments to unconnected subcontractors qualify at 65% of the relevant portion under s1136, and staff provision payments to unconnected providers of externally provided workers at 65% of so much of the payment as is attributable to the workers’ qualifying earnings under s1131(2), qualifying earnings being defined at s1132A. So £400,000 of contractor payments enters the claim as £260,000, and £120,000 of staff provision payments as £78,000. The contracted work was undertaken in the UK, so the overseas restriction does nothing here. Staffing, consumables and the software and data licences enter in full, and the boundaries of each category are set out in qualifying costs.
Two more figures carry the rest: the trading loss before the additional deduction is £1,700,000, and relevant PAYE and National Insurance contributions are £310,000.
Does the group pass the 30% intensity test?
s1045ZA sets it. The condition is met where relevant R&D expenditure is at least 30% of total relevant expenditure, so exactly 30% passes. Where the company is connected with another company, both sides of the ratio are aggregated across all of them, and a company counts as connected for the period if it is connected on any day within it. Expenditure is ignored in the total where it consists of a payment, or other transfer of value, to a connected company.
| Figure | Amount |
|---|---|
| Example Therapeutics Ltd, relevant R&D expenditure | £1,120,000 |
| Example Therapeutics Ltd, total relevant expenditure | £3,100,000 |
| Example Therapeutics Holdings Ltd, relevant R&D expenditure | nil |
| Example Therapeutics Holdings Ltd, total relevant expenditure | £480,000 |
| Basis | Ratio | Result |
|---|---|---|
| The company on its own | £1,120,000 / £3,100,000 = 36.1% | Would pass |
| Aggregated, intra-group payment left in | £1,120,000 / £3,580,000 = 31.3% | Passes |
| Aggregated, £240,000 management charge to Holdings excluded | £1,120,000 / £3,340,000 = 33.5% | Passes |
The £240,000 is a management charge paid by Example Therapeutics Ltd to Example Therapeutics Holdings Ltd. It sits inside the company’s own £3,100,000, and s1045ZA(6)(a) strips it out of the aggregate total. Leaving it in gives 31.3% rather than 33.5%, so the error runs against the company: it understates intensity and can only make a marginal claim look worse. This one passes on all three bases. In a group with a larger charge and a thinner margin above 30%, the same adjustment decides the claim.
The ERIS intensity calculator takes the aggregated figures.
The credit, step by step
| Step | Figure | Reference |
|---|---|---|
| Qualifying Chapter 2 expenditure | £1,120,000 | |
| Additional deduction at 86% | £963,200 | s1044 |
| Trading loss before the additional deduction | £1,700,000 | |
| Unrelieved trading loss | £2,663,200 | |
| 186% of qualifying Chapter 2 expenditure | £2,083,200 | s1055 |
| Surrenderable loss, the lesser of the two | £2,083,200 | s1055 |
| Payable credit at 14.5% | £302,064 | s1058(1) |
| Per £1 of qualifying expenditure | 26.97p | |
| Loss remaining to carry forward | £580,000 |
s1044 gives the additional deduction of 86% on top of the 100% already in the accounts, deepening the trading loss from £1,700,000 to £2,663,200. s1055 then makes the surrenderable loss the lesser of that unrelieved loss and 186% of the qualifying expenditure. Here the 186% figure is smaller, so £2,083,200 is surrendered and £580,000 of loss stays with the company. s1058(1) pays 14.5% of it, and because the credit is not taxable nothing is clawed back: 26.97p per £1 is what the company keeps.
Does the PAYE cap restrict this claim?
No. The cap is £20,000 plus 300% of relevant PAYE and National Insurance contributions. With £310,000 of relevant PAYE and NIC, that gives £950,000, and a £302,064 credit sits well inside it.
Run the same programme in a company with a small UK payroll and most of the work subcontracted, and the cap can sit below the credit earned. Under ERIS the restricted amount is not carried forward: loss surrendered above the capped figure is written off for nothing, so the surrender is sized to the cap before filing. The exemption and the detail are in what is the PAYE cap on R&D tax credits; a claim where the cap does bite is worked in the PAYE cap example.
What the claim looks like on the return
The claim is made in the company tax return: the ERIS figures go on the CT600L, which supports the R&D entries on the CT600, and the boxes are set out in how to enter an R&D claim on the CT600 and CT600L. An Additional Information Form covering the projects, the costs and the competent professional goes to HMRC before or with the return.
The surrender itself is not a box. CIRD122000 puts it plainly: the company may claim in respect of all or part of the surrenderable loss, and the surrender is effected by writing the losses off in the tax computations. So the computation is the document that has to agree with the table above, and £580,000 is the figure carried into the next period’s loss memorandum. The intensity working belongs in the claim file too, with the £240,000 identified.
Cash now or relief later
The company chooses how much of the surrenderable loss to surrender, so there is a decision here as well as a calculation.
| Choice | Credit now | Loss carried forward | That loss at a 25% future rate |
|---|---|---|---|
| Surrender the full £2,083,200 | £302,064 | £580,000 | £145,000 |
| Surrender £1,000,000 | £145,000 | £1,663,200 | £415,800 |
The trade is 14.5p in cash now against relief at the corporation tax rate whenever profits arrive, and the right-hand column assumes 25% when they do. For a pre-revenue company that wait can run for years, and a loss carried forward is worth nothing until there are profits to set it against. That is the point of the credit.
What changes the answer
- A smaller loss. Had the trading loss before the additional deduction been £900,000 rather than £1,700,000, the unrelieved loss would be £1,863,200, below the £2,083,200 ceiling, so the surrenderable loss falls to £1,863,200 and the credit to £270,164, or 24.12p per £1. The 26.97p headline assumes losses at least equal to 186% of qualifying spend, which is why the claim value calculator states that assumption.
- Failing the intensity test. The company would then claim under the merged scheme, Chapter 1A, where the same £1,120,000 produces £181,440 in cash, or 16.2p per £1. Passing the test is worth £120,624 to this company.
- The grace period. If intensity falls to 24% in the following period, ERIS can still be claimed for one further period, but only on both limbs of s1044(2A)(b): the company must have met the intensity condition in its most recent prior accounting period of twelve months’ duration and obtained relief for that period. Eligibility without a claim banks nothing.
- The connected company grows. If Example Therapeutics Holdings Ltd took on a trading operation, its costs would enter the denominator and could take the group below 30% without the R&D changing at all. Any company brought into connection mid-period does the same, which is why groups and connected companies is the first check when the structure changes.
Talk it through with a chartered adviser
A worked example shows how ERIS is calculated. What your own claim is worth turns on which projects qualify, how costs are apportioned, and where your group sits against the 30% ratio. We are regulated by ICAEW, a chartered adviser signs the intensity working and the claim off before either goes to HMRC, and enquiry support is included as standard.
If you want a considered view on your intensity position or the surrender decision, get in touch. The other scenarios sit in the worked-example library, and the rules behind them in the R&D tax relief guide.
Sources
- CTA 2009 s1044 — the additional deduction of 86% of the qualifying Chapter 2 expenditure, and the grace period at subsection (2A)(b), which requires relief to have been obtained for the most recent prior accounting period of twelve months’ duration in which the intensity condition was met.
- CTA 2009 s1045ZA — the R&D intensity condition: at least 30%, aggregated across connected companies on both sides, with payments or other transfers of value to a connected company ignored in the total.
- CTA 2009 s1055 — the Chapter 2 surrenderable loss: the unrelieved trading loss, or 186% of the qualifying Chapter 2 expenditure if less.
- CTA 2009 s1058 — subsection (1), the credit at the lesser of 14.5% of the surrenderable loss and the cap in section 1112B.
- CTA 2009 s1112B — the cap: £20,000 plus three times the company’s relevant PAYE and NIC liabilities.
- CTA 2009 s1131 — subsection (2), qualifying expenditure on externally provided workers where the parties are not all connected: 65% of so much of the staff provision payment as is attributable to qualifying earnings.
- CTA 2009 s1132A — what qualifying earnings are: earnings on which PAYE and Class 1 NIC are accounted for in respect of any part of them, and otherwise earnings attributable to R&D undertaken outside the UK to which section 1138A applies.
- CTA 2009 s1136 — the qualifying element of a contractor payment: 65% of the relevant portion.
- CIRD122000: the ERIS calculation — the surrenderable loss, the company’s ability to claim in respect of all or part of it, and the surrender effected by writing the losses off in the tax computations.
- CIRD123000: the intensity condition — the 30% ratio, connected companies and the one-year grace period.
- CIRD91900 — the R&D SME thresholds.
- Merged scheme and ERIS guidance — the 186% deduction, the 14.5% payable credit and the PAYE cap.
Every CIRD paragraph cited above is indexed on our CIRD reference index, with HMRC’s own title for each, a line on what it says and the date HMRC last revised it.