Intensive R&D Support for SMEs Claiming ERIS

Here are the Details on ERIS and Why is it Important for Loss-Making SMEs to Understand?

What Is ERIS?

ERIS is part of the reformed UK R&D relief framework. It is aimed at innovative loss making SMEs that meet a higher-than-normal threshold of R&D activity, known as the R&D intensity test.

Qualifying companies can access a higher payable tax credit than under RDEC, making ERIS particularly valuable for early-stage or high-growth businesses with substantial R&D spend.

Maximum Tax Credit Under ERIS

• Loss-making SMEs that qualify for ERIS can claim up to 27% of their qualifying R&D costs as a cash credit.

• By comparison, the RDEC scheme typically provides a benefit of around 15% to 16% of relevant expenditure.

• The ERIS calculation is completed within the company’s tax computation.

Who Qualifies for ERIS?

To qualify for ERIS, a company must meet both of the following conditions for the relevant accounting period.

1. The Company Must Be Loss-Making (Before the R&D Claim)

The tax computation of the UK claimant company only must show a trading loss before the R&D claim is applied.Group results do not affect this loss test.

2. The Company Must Meet the R&D Intensity Test

A company must have spent at least 30% of its total expenditure on qualifying R&D during the accounting period.

• For accounting periods beginning before 1 April 2024, the threshold is 40%.

• For accounting periods beginning on or after 1 April 2024, the threshold reduces to 30%.

Important: Group Aggregation Applies

The intensity test is calculated using aggregated expenditure across all worldwide linked or partner enterprises. This means:

• Overseas subsidiaries

• Connected companies

• Partner enterprises

…must all be included in the calculation of total income and total expenditure, even if they are outside the UK.

This is a common area of confusion and a frequent cause of incorrect eligibility assessments.

How the ERIS Calculation Works

ERIS provides a payable tax credit of up to 27% of qualifying R&D costs, but the exact value depends on the relationship between:

• the company’s trading loss (before the R&D claim), and

• its qualifying R&D expenditure.

If the pre-claim loss is equal to or greater than the qualifying R&D spend, the company typically receives the maximum 27% benefit.

If the loss is smaller, the benefit percentage reduces, which may make RDEC more attractive.

ERIS vs RDEC: Which Is Better?

Even if a company qualifies for ERIS, it is not always the best choice. In some cases, RDEC can deliver a higher benefit.

General rule of thumb:

• If pre-claim trading losses ≥ qualifying R&D expenditure → ERIS usually gives the maximum 27%.

• If pre-claim trading losses are less than 25% of qualifying R&D costs → RDEC is often more beneficial, despite ERIS eligibility.

A correct comparison should be performed within the tax computation for each accounting period.

Example

A company has total expenditure of £2m and qualifying R&D costs of £650k (intensity of 32.5% – so ERIS-eligible).

Its pre-claim loss is £150k.

Because the loss is significantly lower than the R&D spend, RDEC may give a higher net benefit than ERIS.

This illustrates why a comparative calculation is essential.

Common Mistakes When Assessing ERIS Eligibility

• Calculating R&D intensity using only UK claimant company figures instead of including global holdings.

• Not adjusting for partner/linked enterprise rules.

• Assuming ERIS is always better than RDEC.

• Failing to test if there were losses before the R&D credit impact is calculated.

• Misunderstanding what counts as “total expenditure” for intensity purposes.

Key Takeaways

• ERIS offers up to 27% of qualifying R&D costs as a cash credit for loss-making SMEs.

• The 30% R&D intensity test applies from April 2024 and must consider worldwide group expenditure.

• The loss test applies only to the UK claimant company.

• ERIS is not always more beneficial than RDEC — the best option depends on the company’s loss position.

Want Help Determining Whether ERIS or RDEC Is Best?

We can model both scenarios to calculate the maximum allowable benefit and ensure your claim is accurate, compliant, and optimised - get in touch.

Visit Claiming RDEC Index Page.