Quick answer: R&D tax credits are calculated by applying the merged scheme's 20% credit rate to qualifying R&D expenditure, then deducting Corporation Tax on the resulting credit. Loss-making, R&D-intensive companies use ERIS instead, a 186% deduction surrendered for a payable credit worth up to 14.5% of the loss. Our calculator gives an indicative range in minutes.
Most of the queries that bring people to an R&D calculator are really asking one question: how does HMRC actually arrive at the number. The mechanics changed in April 2024, and the merged scheme and ERIS guidance sets out two different calculation routes depending on whether a company is profitable or loss-making and R&D-intensive. This guide walks through both, with worked examples, and links to our own free calculator for a figure based on real numbers rather than an average.
How Is the R&D Tax Credit Calculated Under the Merged Scheme?
For most companies, the calculation starts with the 20% merged scheme rate applied to qualifying R&D expenditure for the accounting period. See our guide to the merged scheme for how that rate came about and who it applies to. The resulting credit is paid above the line and is liable to Corporation Tax as trading income, so the net cash benefit is lower than the headline 20% once tax is deducted.
What Counts as Qualifying R&D Expenditure in the Calculation?
Only certain cost categories go into the calculation: staff costs, consumable items, software licences, data and cloud computing costs, clinical trial volunteer payments, and some subcontractor and externally provided worker costs, each with its own rules on what proportion actually qualifies. Our eligible expenditure guide sets out each category. Getting the qualifying spend figure right matters more than the rate itself, because most calculation errors come from including costs that do not qualify rather than from applying the wrong percentage.
What Is a Worked Example of the Merged Scheme Calculation?
A software company spends £150,000 on qualifying staff costs and cloud computing for the year [own-analysis]. Applying the 20% merged scheme rate gives a gross credit of £30,000 [own-analysis]. Because the credit is taxable income, Corporation Tax reduces the net benefit: at the 25% main rate the company keeps around £22,500 net, and at the 19% small profits rate it keeps around £24,300 net [own-analysis].
How Is the ERIS Calculation Different?
Loss-making companies where relevant R&D expenditure is at least 30% of total expenditure use a different mechanic entirely. Instead of a 20% above-the-line credit, ERIS lets a company deduct an extra 86% of qualifying costs on top of the normal 100% deduction, a 186% total deduction, then surrender the resulting loss for a payable tax credit worth up to 14.5% of the surrenderable loss. It is a two-step calculation rather than a single percentage.
What Is a Worked Example of an ERIS Calculation?
A biotech company has qualifying R&D expenditure of £400,000 against total expenditure of £1,000,000, an intensity of 40%, comfortably over the 30% ERIS threshold [own-analysis]. Under ERIS, the 186% total deduction turns £400,000 of qualifying spend into a £744,000 allowable deduction [own-analysis]. Surrendering that loss for a payable credit worth up to 14.5% of the surrenderable loss is worth up to roughly £107,880 in this example [own-analysis].
Why Does an Online Calculator Give an Estimate, Not a Final Figure?
A calculator can only work from the numbers entered into it. It cannot see whether a cost category is correctly classified, whether the company is connected to another company for R&D purposes, or which set of rules applies if the accounting period straddles 1 April 2024: it is the whole period's start date that decides this, not a split within the period. Our UK R&D tax credit statistics page gives the wider claim data context, but an indicative range from a calculator is the start of the process, not the end of it.
Get an Indicative Range, No Call Required
Run the numbers through our free R&D tax credit calculator for an indicative range in minutes. If a written second opinion on the actual figures is more useful than an estimate, just reply and we will send one within 48 hours, no call involved [own-analysis].
Frequently Asked Questions
Multiply qualifying R&D expenditure by the 20% merged scheme rate to get the gross credit, then account for Corporation Tax on that credit because it is taxed as trading income.
Yes, if R&D intensity is at least 30% of total expenditure a loss-making company can use ERIS instead, which applies a 186% deduction and a payable credit worth up to 14.5% of the surrenderable loss rather than the standard 20% credit.
Staff costs, consumables, software, data and cloud computing costs, clinical trial volunteer costs, and some subcontractor and externally provided worker costs. Our eligible expenditure guide breaks each category down.
A calculator gives a useful indicative range, but the final figure depends on the company's actual Corporation Tax position, connected company status, and cost categorisation, so treat it as a starting point rather than a filed number [own-analysis].
It depends entirely on qualifying spend. Try our free R&D tax credit calculator for a figure based on your own numbers rather than a generic average.
Only in narrow circumstances under the merged scheme. See our externally provided workers guide for how overseas staff costs are actually restricted.
Yes, reply for a written view within 48 hours, no call required [own-analysis].
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