Definition
The credit rate under the merged scheme is the 20% above-the-line expenditure credit applied to qualifying R&D expenditure for accounting periods beginning on or after 1 April 2024. Profitable companies retain the credit net of corporation tax, giving a post-tax net benefit of approximately 15p per £1 at the 25% main rate. Loss-making companies can surrender the credit for a cash payment. A separate 27% rate applies under the Enhanced R&D Intensive Support (ERIS) regime for qualifying loss-making R&D-intensive SMEs.
How HMRC defines it
The 20% credit rate is set by Finance (No. 2) Act 2023 and implemented in Chapter 1A of Part 13 of the Corporation Tax Act 2009. HMRC's guidance is at CIRD90100 onwards of the CIRD Manual. The 27% ERIS rate for loss-making R&D-intensive SMEs is at CIRD90700. A PAYE and Class 1 NIC cap limits the payable credit for loss-making companies.
Practical example
A profitable software company with £500,000 of qualifying R&D expenditure in the year ended 31 March 2025 recognises a £100,000 above-the-line credit. Corporation tax at 25% on the credit is £25,000, leaving a net post-tax cash benefit of £75,000, equivalent to 15p per £1 of qualifying spend.