R&D tax credit calculator

Behind the figure

The rates behind the figure, the arithmetic they produce, and the questions the number raises.

How the calculation works

The calculator does one thing: it applies a headline rate to the figure you enter and shows the tax effect on it. There are five routes through it and they differ only in the rate applied.

Under the merged scheme the credit is 20% of qualifying expenditure (CTA 2009 s 1042G). It is an above-the-line credit, so it is brought into the company's taxable profits as a receipt of the trade and then taxed (s 1042H), and the net benefit is what survives that. A company with profits chargeable at the main rate bears corporation tax on the credit at 25%, leaving 15p per £1; one on the small profits rate bears 19%, leaving 16.2p. That is real corporation tax in the computation, not a notional deduction: for a company whose liability absorbs the credit at step 1, the notional tax step never engages at all. Where a company cannot absorb the credit against its own liability, s 1042K restricts what is paid out to the credit net of notional tax at the applicable rate, which is the small profits rate for a loss-maker whatever its size, and is how a loss-making large company and a loss-making SME claiming the merged scheme both reach 16.2p (CIRD112100, step 2).

Enhanced R&D Intensive Support works on deductions rather than on a credit. An additional 86% deduction takes the total to 186% (CTA 2009 s 1044(8)); the surrenderable loss is the lesser of the unrelieved trading loss and 186% of the qualifying expenditure (s 1055(2)); and the payable credit is 14.5% of that loss (s 1058). At the maximum that is 26.97p per £1, paid in cash and not taxable.

Merged scheme: a 20% credit is added above the line and then taxed, so £100,000 of qualifying spend gives a £20,000 gross credit worth £15,000 at the 25% rate, or £16,200 at 19%. Companies with augmented profits between £50,000 and £250,000 pay tax on the credit at the 26.5% marginal rate, which leaves £14,700. Loss-makers have notional tax deducted at 19% only, so the cash outcome is also £16,200 per £100,000. ERIS works differently: the additional 86% deduction takes the total to 186%, and a payable credit of 14.5% of the surrenderable loss produces up to £26,970 per £100,000 of qualifying spend, tax free.

A worked example

What it deliberately does not model

It assumes every pound you enter is qualifying expenditure. That is the assumption that moves the number most, and it is almost never true of a first figure. It applies no cost eligibility test, no 65% restriction on payments to unconnected subcontractors, no contracted-out or overseas rules, and no PAYE and NIC cap. It does not know your accounting period, so it does not check that the merged scheme and ERIS are the schemes you are actually in: accounting periods beginning before 1 April 2024 sit under the old SME scheme or old RDEC at different rates, set out on our rates by year page.

What changes the answer

Four things, in roughly the order they bite.

The qualifying figure.

Scoping a claim properly usually moves the expenditure total further than any rate does. Costs come out, and occasionally costs go in.

Which scheme you are in.

For a loss-making SME the gap between the merged scheme and ERIS is 16.2p against 26.97p per £1, and it turns on a single ratio. Our ERIS intensity calculator tests it.

The corporation tax rate the credit bears.

Profits, associated companies and the length of the period all feed into this.

The PAYE and NIC cap.

£20,000 plus 300% of the company's relevant PAYE and National Insurance liabilities for the period (gov.uk). A company with high R&D spend and a small payroll can find the cap, not the rate, sets what it receives.

How to read the result

As a ceiling on an assumption, not a forecast. The figure tells you what the rates do to the number you typed, and says nothing about whether that number is right. It is a reasonable figure to take into a budget or a board paper, provided it travels with the assumption behind it, and not a figure to commit to a funder, a valuation or a cash flow before the claim has been scoped.

Questions

What does an R&D claim return per £1 of qualifying spend?

For accounting periods beginning on or after 1 April 2024, the merged scheme returns between 14.7p and 16.2p of after-tax benefit for every £1 of qualifying expenditure, and Enhanced R&D Intensive Support returns up to 26.97p per £1 for a loss-making, R&D-intensive SME. The merged scheme credit is 20% of qualifying expenditure before the tax on it; ERIS is an 86% additional deduction and a payable credit of 14.5% of the surrenderable loss.

Which of those applies to you is decided by your tax position and your R&D intensity, not by preference. Periods beginning before 1 April 2024 sit under the old schemes at different rates, and how much a claim is worth sets the whole picture out in one place.

Why is the merged scheme credit worth less than 20%?

Because the credit is taxable. It is brought above the line into the company's profits and then bears corporation tax, so a 20% credit is worth 20% less the tax on it: 15p per £1 at the 25% main rate, 16.2p at 19%, and 14.7p where the credit falls in the marginal band. The 20% figure is the gross credit, not the benefit.

This is the single most common misreading of the merged scheme, and it is why the calculator shows the gross credit, the tax on it and the net separately rather than only the headline.

Why do loss-making companies get 16.2p and profitable companies 15p?

Because the applicable rate is the main rate only for a company with profits chargeable at the main rate before the credit is accounted for, and the small profits rate otherwise. A profitable company bears 25% on the credit as real corporation tax in its computation, under s 1042H, and keeps 15p. A loss-making company has no profits chargeable at the main rate, so the notional tax deducted at step 2 is taken at 19% and it reaches 16.2p per £1 (CIRD112100).

It is a consequence of the seven-step payment mechanism rather than a relief for loss-makers, and it applies whatever the company's size. The cash is then subject to the remaining steps and to the PAYE and NIC cap.

What is the 26.5% marginal rate, and when does it apply?

It is the rate at which corporation tax effectively rises on profits between the £50,000 lower limit and the £250,000 upper limit, once marginal relief is taken into account. Because the merged scheme credit is itself taxable income, a credit falling in that band bears tax at 26.5%, leaving 14.7p per £1 rather than 15p or 16.2p.

The limits are divided by one plus the number of associated companies and reduced proportionately for an accounting period shorter than 12 months (gov.uk), so a company in a group can fall into a different band than its own profits suggest. A credit large enough to span either limit bears a blend and lands between 14.7p and 16.2p.

How much does ERIS pay per £1 of qualifying spend?

Up to 26.97p, as a payable credit that is not taxable. The additional 86% deduction takes the total deduction to 186%, and the payable credit is 14.5% of the surrenderable loss, which is capped at 186% of the qualifying expenditure: 186% multiplied by 14.5% is 26.97%.

"Up to" is doing real work in that sentence. The surrenderable loss is the lesser of the unrelieved trading loss and that 186% figure, so a company without losses at least equal to 186% of its qualifying spend reaches less than the ceiling, and the PAYE and NIC cap can reduce it further.

Why is the real claim usually smaller than the calculator says?

Because the calculator prices the figure you gave it, and scoping almost always reduces that figure. Costs that felt like R&D spend fall outside the boundary; payments to unconnected subcontractors come in at 65%; overseas subcontractor and externally provided worker costs are restricted; and work a customer commissioned may belong in the customer's claim rather than yours.

That is the intended use of the tool. It gives you the order of magnitude in a minute so you can decide whether the work of establishing the real figure is worth doing, and our guides set out where each of those boundaries falls.