Definition
Under the merged scheme, the research and development expenditure credit (RDEC) is treated as taxable income. It flows through a waterfall defined in Part 13 of the Corporation Tax Act 2009. Steps 1 through 4 offset the net credit (after the notional tax charge) against corporation tax. If any credit remains after those offsets, steps 5 and 6 provide for the surplus to be surrendered to a group company or paid out as a cash repayment. That cash repayment is the payable credit.
For a company with no CT liability (because it is loss-making), the full net credit may flow through to the payable credit at step 6, subject to the PAYE cap. The PAYE cap limits the cash payment to £20,000 plus three times the company's total PAYE and Class 1 NIC liability for the period.
Payable credit versus taxable credit
The distinction between a payable credit and a taxable credit is one of timing and cash flow. A taxable credit reduces the CT bill but generates no cash payment if the bill is fully covered. A payable credit is the residual that becomes a real cash receipt. Both arise from the same RDEC mechanism: the difference is whether there is remaining credit after offsetting CT.
For a profitable company whose CT bill exceeds the net credit, there is no payable credit, only a reduced CT payment. For a company making losses, the payable credit is often the most visible benefit of the claim, because it is an actual cash receipt from HMRC, not just a reduction in a tax bill that would have been zero anyway.
ERIS and the enhanced payable credit
Loss-making SMEs that qualify for ERIS (Enhanced R&D Intensive Support), which requires an R&D intensity of at least 30% of total expenditure, receive a higher credit rate of approximately 27% net. The payable credit for an ERIS-qualifying company is therefore larger than the equivalent merged-scheme payable credit on the same qualifying spend. The R&D intensity ratio entry explains how to calculate whether the 30% threshold is met.
Common mistakes
A common mistake is expecting the full 20% gross credit as a cash payment. After the notional tax charge, the maximum payable credit on merged-scheme qualifying spend is approximately 15% for loss-making companies at the main CT rate. A second mistake is not accounting for the PAYE cap when forecasting the cash benefit. A pre-revenue startup with low payroll may find its cash receipt is notably smaller than a naive 15% calculation would suggest. For a concrete check of what your business might receive, use the eligibility checker.