Definition
A loss-making R&D claim is an R&D tax relief claim from a company that has insufficient taxable profit to absorb the relief. Under the merged scheme from 1 April 2024, a loss-making company surrenders the above-the-line credit for a payable tax credit at a net rate of approximately 16.2p per £1 of qualifying expenditure. A qualifying loss-making R&D-intensive SME instead claims under ERIS at 27p per £1. Both routes are subject to the PAYE and NIC cap introduced in 2021.
How HMRC defines it
HMRC guidance on payable credits is at CIRD90400 for the merged scheme and CIRD90700 for ERIS. The PAYE and NIC cap rules are at CIRD90500 and CIRD90710. The legislation is in Chapters 1A and 2 of Part 13 of the Corporation Tax Act 2009.
Practical example
A loss-making software start-up has £250,000 of qualifying R&D expenditure in the year ended 31 March 2025. It does not meet the 30% intensity threshold. Under the merged scheme, the company surrenders the credit for a payable amount of approximately £40,500, subject to the PAYE and NIC cap applied to its workforce costs.