If your small company spends money developing new products, processes, or services, you may be entitled to R&D tax relief — one of the most valuable Corporation Tax reliefs available. But the rules changed significantly from 1 April 2024, and many directors are confused about what they can claim and how to report it.
Here's a clear guide to the merged R&D scheme for SMEs and how it flows into your CT600.
What changed from April 2024?
Before April 2024, there were two separate R&D schemes:
- SME R&D Relief — an enhanced deduction on qualifying spend. The rate was cut on 1 April 2023: before that date, SMEs deducted 230% in total (a 130% enhancement on top of actual spend). From 1 April 2023 it was reduced to 186% total (an 86% enhancement). The payable credit rate for loss-making SMEs was also cut from 14.5% to 10% at the same time.
- RDEC (R&D Expenditure Credit) — a taxable above-the-line credit, raised from 13% to 20% from April 2023, mainly for large companies.
From 1 April 2024, these merged into a single scheme. All companies — large and small — now use an RDEC-style mechanism:
| Feature | Merged scheme (from April 2024) |
|---|---|
| Mechanism | 20% above-the-line expenditure credit |
| Net benefit (25% CT payer) | ~15% of qualifying R&D spend |
| Net benefit (19% CT payer) | ~16.2% of qualifying R&D spend |
| Loss-making companies | Credit payable as cash (up to full 20% of spend) after setting off HMRC liabilities |
| R&D-intensive SMEs (ERIS) | 14.5% payable credit on surrenderable loss (if R&D spend ≥30% of total expenditure and company is loss-making) |
The 20% credit is "above the line" — it is brought into account as income before computing your Corporation Tax liability, then offsets that liability. Because the credit itself is taxable income, the net saving for a 25% taxpayer is 20% × (1 − 25%) = 15%, and for a 19% taxpayer it is 20% × (1 − 19%) = 16.2%.
ERIS (Enhanced R&D Intensive Support) is a separate, enhanced route available only to SMEs that are both loss-making and have qualifying R&D expenditure of 30% or more of their total expenditure. Under ERIS, qualifying companies receive an 86% enhanced deduction (186% total) and can surrender the resulting qualifying loss for a 14.5% payable credit — which is typically a better outcome than the standard merged scheme for deeply loss-making, high-intensity R&D businesses.
What counts as qualifying R&D expenditure?
HMRC's definition of R&D for tax purposes follows the guidelines published by the Department for Science, Innovation and Technology (DSIT). Your project must seek an advance in science or technology — not just be new to your business.
Qualifying expenditure categories:
- Staff costs — salaries, employer NIC, and pension contributions for employees directly involved in R&D
- Subcontractor costs — payments to third parties for R&D work (now included in merged scheme at 65% for unconnected subcontractors)
- Consumables — materials, utilities, and software used up or transformed in the R&D process
- Software — licences used directly in R&D activities
- Cloud computing and data costs — new category from April 2023 onwards
Costs that don't qualify:
- Capital expenditure (claim capital allowances instead)
- Land or property costs
- Patent and trademark fees
- Work done to apply existing technology without seeking an advance
How to calculate the tax benefit
Example: SME with £100,000 R&D spend
Under the merged scheme (April 2024 onwards):
| Step | Amount |
|---|---|
| Actual R&D expenditure | £100,000 |
| 20% expenditure credit (above-the-line) | £20,000 |
| CT on the credit at 25% main rate | −£5,000 |
| Net benefit (25% CT payer) | £15,000 |
| Net benefit (19% small profits rate) | £16,200 |
The credit is treated as taxable income, so the net saving depends on your tax rate. A 25% taxpayer keeps £15,000 of the £20,000 credit after paying CT on the credit income. A 19% taxpayer keeps £16,200.
If your company is loss-making under the standard merged scheme, you may receive the 20% credit as a cash payment from HMRC. The credit passes through a statutory step-down process (s.104N CTA 2009): it is first set against any outstanding Corporation Tax liabilities, then against other HMRC debts including PAYE and NIC arrears, with any remaining balance paid as cash. For a company with no other liabilities, this can mean receiving up to £20,000 in cash on £100,000 of qualifying spend.
ERIS (R&D-intensive SMEs only): If your company is loss-making and qualifying R&D spend represents 30% or more of total expenditure, ERIS applies instead of the standard merged scheme. Under ERIS, the 86% enhanced deduction increases your surrenderable loss, and you can claim a 14.5% payable credit on that surrenderable loss. For high R&D-intensity businesses this can produce a larger cash payment than the standard merged scheme.
Which CT600 boxes to complete
R&D relief requires completing several sections of your CT600 as well as the CT600L supplementary page.
Main CT600 form
Indicator boxes (complete for all R&D claims):
- Box 142 — Research and Development (form CT600L): tick to indicate you are filing a CT600L supplementary page with your return
- Box 650 — Tick if you are a small or medium-sized enterprise (SME) making an R&D claim, including as an SME subcontractor to a large company
- Box 653 — Tick if your claim is under the R&D intensive SME (ERIS) route. HMRC guidance: "You can only complete this box if there is an X in box 650."
- Box 656 — Tick to confirm you have submitted the R&D claim notification form (required for new claimants — see below)
- Box 657 — Tick to confirm you have submitted the Additional Information Form before filing
Expenditure and credit boxes — standard merged scheme:
- Box 530 — Research and Development credit: enter the figure from CT600L box L210. HMRC guidance: "Enter the figure you gave in box L210 of the supplementary page CT600L Research and Development." This is the 20% expenditure credit under the merged scheme. Standard merged-scheme companies complete this box — do not also complete boxes 659/660.
- Box 535 — Not currently used — leave blank
ERIS claimants only (Enhanced R&D Intensive Support):
- Box 659 — Total qualifying R&D expenditure under ERIS: enter your actual qualifying R&D spend. Note: HMRC guidance states "Do not enter expenditure which qualifies for research and development expenditure credit in this box" — this box is for ERIS claims only, not standard merged-scheme claims.
- Box 660 — R&D enhanced expenditure under ERIS: enter the full 186% enhanced expenditure figure (qualifying R&D spend plus the 86% additional deduction; for example, £186,000 on £100,000 of qualifying expenditure). ERIS claimants only — do not complete if claiming under the standard merged scheme.
If you are loss-making and claiming a payable credit under the standard merged scheme:
- Box 40 — Tick to indicate a repayment is due for this period
- Box 880 — Payable R&D expenditure credit: enter the step 7 amount from CT600L box L125 (the amount calculated under s.104N(2) CTA 2009 after setting the credit against HMRC liabilities)
If you are loss-making and claiming under ERIS:
- Box 40 — Tick to indicate a repayment is due for this period
- Box 875 — Payable R&D tax credit: enter the cash amount from CT600L box L180
Trading losses are reported separately — in box 160 (losses brought forward against trading profits), box 275 (losses against total profits), box 285 (post-2017 losses against total profits), or box 780 (current-period UK trading losses). These are entirely distinct from the R&D credit boxes above.
CT600L — R&D supplementary page
You must submit the CT600L supplementary page alongside your CT600. This is mandatory for all R&D claims from April 2024. Key sections:
- Total amount of qualifying R&D expenditure by category (staff, subcontractors, consumables, etc.)
- RDEC credit amount (the 20% credit under the merged scheme)
- Payable credit claimed (for loss-making companies)
- ERIS claim details (if applicable)
Additional Information Form (AIF)
Since 8 August 2023, all R&D claims must include an Additional Information Form submitted to HMRC before filing the CT600. This must include:
- A description of each R&D project
- How each project sought an advance in science or technology
- Breakdown of costs by category
- Agent details (if a tax adviser prepared the claim)
Failure to submit the AIF before filing will result in your R&D claim being rejected.
Pre-notification requirement for new claimants
If your company has not claimed R&D relief in the previous three accounting periods, you must submit a claim notification form to HMRC. The deadline is 6 months after the end of the accounting period you're claiming for.
Miss this deadline and you cannot claim R&D relief for that period — no exceptions.
Common mistakes when claiming R&D relief
- Claiming for routine development — adapting existing technology isn't R&D; you must demonstrate technological uncertainty
- Forgetting the AIF — mandatory since August 2023, and claims are rejected without it
- Missing the pre-notification deadline — new claimants have only 6 months after the period end
- Including non-qualifying costs — capital items, rent, and admin overheads don't qualify
- Overclaiming subcontractor costs — only 65% of payments to unconnected subcontractors are qualifying spend under the merged scheme
Should you use an R&D specialist or claim yourself?
Many R&D advisory firms charge 15–30% of the tax saving as their fee. For straightforward claims (e.g., a software company with clear development projects), you may be able to prepare the claim yourself and save thousands.
The key is accurately identifying qualifying projects and expenditure. If your R&D is complex or your claim is large, specialist advice may be worthwhile — but always check their credentials and avoid firms that promise unrealistic savings.
Related articles
- Corporation Tax Reliefs: Complete List for UK Companies
- CT600 Box-by-Box Guide: Every Section Explained
- CT600 Supplementary Pages Guide
- Corporation Tax Allowable Expenses: Complete List
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Related: Patent Box relief (10% rate)