R&D Tax Credits rates determine how much your business can claim back on qualifying research and development spend.
If you’ve been researching different R&D Tax Credits consultants, you’ll have probably seen promises of getting up to “27% of your qualifying R&D expenditure” back. While it is possible that some eligible SMEs can receive this much, the truth is that not every business will qualify for the full 27% headline rate.
Your actual rate depends on which R&D Tax Credits scheme suits your circumstances, and this is shaped by a few things, such as when your accounting period began, your company’s size and profitability, and how much of your total spend goes on your R&D projects.
In this article, we explain the current R&D Tax Credits rates and how each scheme calculates your benefit.
What are the current R&D Tax Credits rates?
For accounting periods beginning on or after 1 April 2024, you’ll claim through one of two schemes:
Both large companies and SMEs can claim under the merged scheme, with an R&D Tax Credit rate of 20% of your qualifying R&D expenditure.
To calculate your expenditure credit, add up your eligible R&D expenses and multiply the figure by 20%.
The credit is subject to corporation tax (CT), so your net benefit depends on the CT rate you pay:
If you pay the main rate of 25%, your net benefit will be 15%
If you pay the small profits rate of 19%, your net benefit will be 16.2%
The ERIS rate (on or after 1 April 2024)
ERIS supports loss-making SMEs whose R&D spend makes up at least 30% of their total expenditure.
Under ERIS, you first multiply your qualifying costs by 86% to get your additional R&D relief deduction. Then you multiply your qualifying costs by 186% to get your enhanced expenditure amount. You can then choose to give up the lower of your enhanced expenditure amount, or your total trading loss (after the additional R&D relief deduction) in return for a payable tax credit of 14.5%.
What were the R&D Tax Credits rates for older accounting periods?
For accounting periods beginning before 1 April 2024, you’d claim through the R&D Expenditure Credit (RDEC) or the R&D SME scheme (although, for many companies, these schemes are no longer applicable because you can only amend a CT return to include an R&D claim up to two years after the end of the relevant accounting period).
RDEC rates (before 1 April 2024)
RDEC was a tax credit for large companies (and some SMEs). The expenditure credit rate depended on when your costs were incurred but from 1 April 2023 up to and including 31 March 2024 the rate was 20%.
Like the merged scheme, the RDEC credit is subject to CT. At the 25% main rate, the net benefit on the 20% credit is 15%. At the 19% small profits rate, the net benefit is 16.2%.
R&D SME scheme rates (before 1 April 2024)
The R&D SME scheme was for companies with a headcount below 500 and a turnover under 100 million euros (or a balance sheet total under 86 million euros).
To calculate your relief, first multiply your qualifying expenditure by 86% to get your additional R&D relief deduction. Then multiply your qualifying expenditure by 186% to get your enhanced expenditure amount.
If your company is profit-making, your benefit will be your qualifying expenditure multiplied by 86%, multiplied by your applicable CT rate (e.g., 25% main rate or 19% small profits rate). If your company is loss-making, you can give up the lower of your enhanced expenditure amount or your total trading loss (after the additional R&D relief deduction) in return for a payable credit. The rate is 14.5% if your company is R&D intensive, meaning your R&D spend is at least 40% of your total expenditure. Otherwise, the rate is 10%.
R&D Tax Credits rateexample calculations
Below are some example calculations, to help you understand how R&D Tax Credits rates work in practice.
R&D Expenditure Credit / merged R&D scheme
Large profits
Small profits
Qualifying expenditure
£100,000.00
£100,000.00
R&D Tax Credits rate
20%
20%
Gross expenditure credit
£20,000.00
£20,000.00
Corporation Tax (CT) rate
25%
19%
Net expenditure credit
£15,000.00
£16,200.00
Effective rate
15%
16.20%
SME scheme / ERIS
Profit-making
Loss making (not R&D intensive)
Loss making (R&D intensive)
Qualifying expenditure
£100,000.00
£100,000.00
£100,000.00
Additional deduction
£86,000.00
£86,000.00
£86,000.00
Enhanced expenditure
£186,000.00
£186,000.00
£186,000.00
Trading profit / (loss) – Pre-R&D
£500,000.00
(£200,000.00)
(£200,000.00)
CT payable
£125,000.00
£ –
£ –
Trading profit / (loss) – Post-R&D
£414,000.00
(£286,000.00)
(£286,000.00)
CT payable
£103,500.00
Tax credit
£18,600.00
£26,970.00
Tax benefit
£21,500.00
£18,600.00
£26,970.00
Effective rate
21.50%
18.60%
27.00%
R&D Tax Credits are worth claiming at any rate
Even if your rate isn’t as high as 27%, the benefit is still well worth claiming, as eligible R&D expenditure includes staff costs for the proportion of time they’ve worked on the R&D such as bonuses, salaries, pensions and training spend. This isn’t limited to just engineers, scientists, project managers or software developers; it also covers staff who have indirectly supported R&D projects, such as those helping with admin work.
You can also claim for project expenses like consumable items, software, data licences and cloud computing costs, and some other eligible outgoings. It can all add up to a significant amount of savings.
These savings can be reinvested. Here’s how some of our clients used what they received from their R&D claims:
Kudos Blends
Kudos Blends is one of the world’s leading manufacturers of technically driven baking powders and leavening agents. They invested their R&D tax relief back into research and development.
Quix was founded in 2020 by former McLaren Formula 1 engineers to build software that supports engineering organisations in developing products such as, cars, trucks, buses and other systems. They used their R&D tax relief to expand their runway and increase their investment in growth.
Precursive is a provider of Professional Services Automation (PSA) software that helps transform your services business with the AI-powered PSA platform to connect demand with delivery, improve execution and grow recurring revenue. They used their R&D tax relief to bring forward new hires that they might otherwise have delayed.
