The Enhanced R&D Intensive Support (ERIS) scheme is for loss-making, R&D-intensive SMEs. It offers higher tax relief for companies that are heavily invested in research and development.
Launched in April 2023, the ERIS scheme recognises and supports SMEs driving innovation across industries, especially those making significant contributions to technology and science.
The Enhanced R&D Intensive Support scheme offers a higher payable R&D tax credit rate of 14.5%, potentially providing up to 27% back on qualifying R&D expenditure. By offering enhanced tax relief, ERIS helps R&D-intensive companies continue their R&D, and is designed to help the UK remain a global innovation leader.
In this article, we look at the features and benefits of the ERIS scheme, eligibility, and how it compares to the merged RDEC scheme. We’ll also give examples of how ERIS can help your business depending on your R&D spend and financial situation.
In this article:
What is an R&D-intensive SME?
An R&D-intensive SME is a loss-making company with qualifying R&D expenditure that makes up at least 30% of its total expenditure (this threshold was 40% for accounting periods before 1 April 2024).
To be classified as an SME for R&D purposes, you must also meet HMRC’s criteria:
- Employ fewer than 500 individuals
- Generate a turnover not exceeding €100 million
- Possess gross assets of no more than €86 million
How much will an R&D-intensive SME receive?
Through the ERIS scheme, a loss-making R&D-intensive SME can claim a higher payable R&D tax credit rate of 14.5% (rather than the 10% rate for the standard SME scheme). However, the enhancement rate remains the same as the SME scheme at 86%.
The actual benefit you receive through ERIS can vary significantly depending on your trading losses.
Example 1: High trading loss (27% benefit)
Situation:
- Trading loss: £200,000
- R&D expenditure: £100,000
Calculation:
- R&D enhancement: £100,000 x 86% = £86,000
- Combined enhancement and loss: £86,000 + £200,000 = £286,000
- Potential credit: £286,000 x 14.5% = £41,470
- Cap applied: £100,000 x 26.97% = £26,970 (capped)
Result: £26,970 credit (26.97% of R&D expenditure)
Example 2: Low trading loss (12.5% benefit)
Situation:
- Trading loss: £1
- R&D expenditure: £100,000
Calculation:
- R&D enhancement: £100,000 x 86% = £86,000
- Combined enhancement and loss: £86,000 + £1 = £86,001
- Potential credit: £86,001 x 14.5% = £12,470
Result: £12,470 credit (12.47% of R&D expenditure)
When might the merged RDEC scheme be a better option?
While ERIS offers attractive benefits, there are situations where claiming under the merged RDEC scheme might be more advantageous:
- Low trading losses: If your trading losses are minimal, the ERIS benefit might be lower than the merged RDEC scheme, which offers a consistent 16.2% benefit for loss-making companies.
- Predictable future profitability: If you expect to become profitable soon, the merged RDEC scheme’s above-the-line credit could be better for attracting investors.
- Simplicity: The merged RDEC scheme has a simpler calculation process.
ERIS Scheme Timeline
Here’s a timeline of key events:
- April 2023: Support for R&D-intensive SMEs is introduced, providing a higher rate of relief for loss-making R&D-intensive SMEs. The initial R&D intensity threshold is set at 40% of total expenditure.
- November 2023: In the Autumn Statement, the government announces that the R&D intensity threshold will be lowered to 30% from 1 April 2024. This change expands eligibility for the scheme.
- April 2024: The ERIS scheme becomes a permanent fixture alongside the merged RDEC scheme. The lower 30% R&D intensity threshold comes into effect.
The ERIS scheme represents a significant step in supporting R&D-intensive SMEs. By providing enhanced tax relief, the government aims to encourage these companies to continue investing in R&D, even during challenging financial times, and to ensure that the UK remains at the forefront of innovation.
How can EmpowerRD help?
Our team can help you determine the best scheme for your specific circumstances. We can also assist with identifying qualifying R&D expenses and optimizing your claim.
