Definition
R&D intensity is the ratio of qualifying research and development expenditure to total expenditure recognised in an accounting period. The ratio is the gateway test for Enhanced R&D Intensive Support, which requires a loss-making UK SME to have R&D intensity of at least 30% for accounting periods beginning on or after 1 April 2024. The measurement is aggregated across connected companies to prevent fragmentation, and total expenditure is based on amounts recognised in the profit and loss account for accounting purposes, with specified adjustments.
How HMRC defines it
HMRC guidance on the R&D intensity calculation is at CIRD90720 and CIRD90740 of the CIRD Manual. The legislation is in Chapter 2 of Part 13 of the Corporation Tax Act 2009 as amended by Finance (No. 2) Act 2023. Connected-company aggregation is derived from section 1138 of that Act.
Practical example
A group of two connected SMEs has total aggregate expenditure of £1,400,000 in the year, of which £500,000 is qualifying R&D. Aggregate R&D intensity is 35.7%, above the 30% threshold, so the loss-making SME in the group claims at the 27% ERIS rate rather than the merged scheme 20%.