Since April 2024, two schemes have been available to businesses for claiming R&D Tax Credits, the merged RDEC scheme and Enhanced R&D Intensive Support (ERIS) for loss-making SMEs.
ERIS offers an enhanced rate of R&D relief for loss-making SMEs investing heavily in innovation, where R&D expenditure makes up 30% of their total spend. Businesses that qualify receive an additional deduction of 86% along with the usual 100% deduction (a total deduction of 186%) and a 14.5% tax credit.
But new rules are being introduced for certain companies based in Northern Ireland, affecting the amount of relief they’re entitled to for ERIS claims made on or after 30 October 2024.
In this article we explain how R&D Tax Credits are changing for Northern Ireland companies that claim via the Enhanced R&D Intensive Support (ERIS) scheme.
How is Enhanced R&D Intensive Support (ERIS) changing for Northern Ireland SMEs?
The Windsor Framework, signed in the aftermath of Brexit, sets out unique trade rules for Northern Ireland. To ensure that the UK Government is following the framework as agreed, new rules are being introduced for the ERIS scheme, affecting SMEs that have their registered office based in Northern Ireland.
Specifically, the changes bring Northern Ireland in line with the EU’s rules on De Minimis aid, where there is a rolling 3-year limit of €300,000 (with lower limits of €20,000 for agriculture and €30,000 for fisheries and aquaculture).
As such, instead of the current £250,000 cap on R&D relief, the ERIS scheme for Northern Ireland companies will also be capped at €300,000 over a 3-year period, which applies to ‘additional relief’ received through ERIS, plus any De Minimis aid from the EU. ‘Additional relief’ is the amount that the ERIS benefit would exceed an equivalent merged RDEC scheme benefit. For R&D expenditure that exceeds the limit, companies may still be able to claim under the merged RDEC scheme.
Furthermore, SMEs that are affected by the changes won’t be subject to the R&D relief restrictions for overseas contractors and externally provided workers.
An opt out is available for businesses that don’t trade in goods and if their work isn’t connected to the electricity market (e.g., distribution, supply production, transmission, wholesale trading, cross-border exchange).
The changes were announced in the Autumn Budget, so when the Autumn Finance Bill 2024-25 receives Royal assent, the new rules will be backdated from 30 October 2024 for any ERIS claims made on or after that day.
How Leyton can help
The ERIS scheme allows loss-making SMEs that are R&D intensive to claim a valuable tax credit on eligible expenses such as staff costs, consumable items, software and other R&D-related expenditure.
But claiming R&D relief can be complex and time-consuming. There have been so many rule changes recently, and HMRC have increased their scrutiny of R&D Tax Credit applications, that many businesses risk missing out on valuable tax savings for fear of making a mistake.
That’s where we come in. Our friendly team of specialists are not only experts at identifying eligible expenses, they’ll also make the process as easy as possible for your business. We’ll do all the hard work of preparing the application, ensuring that you’re compliantly claiming everything you’re eligible for.
If you enjoyed this article, you might also like:
