Key facts
- ERIS is available from 1 April 2024 for loss-making SMEs where R&D expenditure is 30% or more of total expenditure.
- It provides an 86% additional deduction on qualifying R&D costs (on top of the normal 100% deduction).
- Loss-making companies can surrender losses for a 14.5% payable tax credit.
- The R&D intensity threshold was reduced from 40% to 30% from 1 April 2024.
- Companies must be SMEs (fewer than 500 employees, turnover under €100m or balance sheet under €86m).
What Is ERIS?
The Enhanced R&D Intensive Support (ERIS) scheme is a targeted R&D tax relief for loss-making SMEs that spend a high proportion of their total expenditure on R&D. It was introduced alongside the merged RDEC from 1 April 2024 (with an earlier version applying from 1 April 2023 at a 40% intensity threshold).[1]
ERIS is designed to support innovative start-ups and early-stage businesses that are not yet profitable but are investing heavily in research and development.
Who Is Eligible?
To claim under ERIS, a company must meet all of the following conditions:[3]
- Be an SME — fewer than 500 employees, and either annual turnover under €100 million or a balance sheet total under €86 million
- Be loss-making for the accounting period (after claiming the enhanced R&D deduction)
- Be R&D intensive — qualifying R&D expenditure is at least 30% of total expenditure
The 30% test: R&D intensity = qualifying R&D expenditure ÷ total expenditure. “Total expenditure” means all amounts recognised as expenses in the profit and loss account, including cost of sales, administrative expenses, and other operating charges. Capital expenditure is excluded from both numerator and denominator.
How ERIS Works
The ERIS scheme works in two stages:[1]
| Stage | Description |
|---|---|
| 1. Enhanced deduction | Deduct an additional 86% of qualifying R&D expenditure from taxable profits (on top of the normal 100% deduction). Total deduction = 186% of R&D costs. |
| 2. Payable credit | If the company is loss-making, it can surrender the loss (or part of it) for a payable tax credit at 14.5%. |
Worked Example
Consider a start-up technology company with the following figures:
| Item | Amount |
|---|---|
| Revenue | £50,000 |
| Total expenditure (P&L) | £300,000 |
| Of which: qualifying R&D expenditure | £150,000 |
| R&D intensity (150k ÷ 300k) | 50% — qualifies |
| Step | Calculation | Amount |
|---|---|---|
| 1 | Trading loss before R&D relief | −£250,000 |
| 2 | Additional 86% deduction (86% × £150,000) | −£129,000 |
| 3 | Enhanced trading loss | −£379,000 |
| 4 | Payable credit (14.5% × £379,000) | £54,955 |
The company receives a cash payment of £54,955 from HMRC. Under the merged RDEC, the same company would receive approximately £22,500 (20% × £150,000 = £30,000, less notional tax). ERIS provides more than double the benefit.
Tip: The maximum amount of loss that can be surrendered for ERIS payable credit is capped at the company’s total PAYE and NI liabilities plus the enhanced R&D loss. This cap is designed to prevent abuse but rarely affects genuine R&D intensive companies with employees.
The One-Year Grace Period
If your company was R&D intensive in the previous accounting period but falls below the 30% threshold in the current period, a one-year grace period applies. You can still claim ERIS for the current period as if you were R&D intensive.[3]
This prevents companies from losing ERIS eligibility due to a single year of fluctuating R&D spend. However, if you remain below 30% for two consecutive periods, the grace period ends and you must claim under the merged RDEC.
ERIS vs Merged RDEC: Quick Comparison
| Feature | ERIS | Merged RDEC |
|---|---|---|
| Available to | Loss-making R&D intensive SMEs | All companies |
| R&D intensity threshold | 30% of total expenditure | None |
| Mechanism | 86% additional deduction + 14.5% payable credit | 20% above-the-line credit |
| Net benefit (£100k R&D spend) | Up to ~£27,000 (payable credit) | ~£15,000 (net of CT) |
| Profitable companies | Not available | Yes |
Frequently Asked Questions
What does "R&D intensive" mean?
A company is R&D intensive if its qualifying R&D expenditure accounts for 30% or more of its total expenditure for the accounting period. Total expenditure includes all costs recognised in the profit and loss account. If you meet the 30% threshold, you are eligible for ERIS instead of (or as well as) the merged RDEC.
Can a profitable company use ERIS?
No. ERIS is specifically designed for loss-making R&D intensive SMEs. If your company is profitable after the enhanced R&D deduction, you use the merged RDEC instead. However, if the enhanced deduction creates or increases a loss, you can surrender that loss for the 14.5% payable credit.
How does ERIS compare to the merged RDEC?
For a loss-making R&D intensive SME spending £100,000 on R&D, ERIS gives a payable credit of approximately £27,000 (86% additional deduction = £86,000 enhanced loss, surrendered at 14.5% = £12,470 from the enhanced part, plus the base loss). Under the merged RDEC, the same company would receive approximately £15,000. ERIS is significantly more beneficial for qualifying companies.
What happens if I fall below the 30% intensity threshold?
There is a one-year grace period. If you were R&D intensive in the previous period but fall below 30% in the current period, you can still claim ERIS for that current period. If you remain below 30% for two consecutive periods, you revert to the merged RDEC.
Further Reading
- The Merged RDEC Scheme — the standard relief for all companies
- Eligible R&D Costs — what expenditure qualifies
- How to Claim R&D Tax Credits — step-by-step guide
- Claim Deadlines & Time Limits — when you must submit your claim
Looking for simple tax software?
#GoFile is HMRC-recognised and trusted by 50,000+ UK businesses. Set up in minutes, file with confidence.
Get Started For FreeNo credit card required · Cancel anytime