Who it's for: finance assistants, accountants and controllers in UK SaaS and tech companies who pull together the numbers behind an R&D tax relief claim.
What you'll get: the merged scheme and ERIS explained in plain English (rules as at October 2026), a cost-gathering checklist, two worked examples with journals, and a risks and controls table.
Reading time: about 13 minutes. Read it before year-end, not the week the tax return is due.
Why R&D relief lands on the finance team's desk
For many UK SaaS companies, R&D tax relief is one of the biggest cash items of the year. The engineers do the R&D, a specialist or tax team often writes the technical narrative, but finance owns the numbers: payroll splits, contractor costs, cloud bills and the journals. Wrong numbers mean a claim that's too small, or too big and open to challenge. Neither is a good look in the board pack.
The rules were rebuilt for periods beginning on or after 1 April 2024, so older internal notes may describe schemes that no longer apply.
Key terms
- R&D for tax purposes: work that seeks an advance in science or technology by resolving scientific or technological uncertainty. Routine software development, bug fixing and building features with known methods usually don't qualify. HMRC's guidance on what counts is on gov.uk.
- Merged scheme (merged RDEC): the main R&D scheme for accounting periods beginning on or after 1 April 2024, replacing the old SME and RDEC schemes. It gives an R&D expenditure credit (RDEC), a taxable credit worked out as a percentage of qualifying spend.
- ERIS (enhanced R&D intensive support): an alternative for loss-making SMEs that spend a high share of their costs on R&D. It gives an extra tax deduction and a payable tax credit.
- Qualifying expenditure: the costs that can go into the claim, such as staff time on R&D, some contractor and agency costs, cloud computing, data licences, software and consumables.
- EPW (externally provided worker): someone supplied by an agency or staff provider rather than employed directly.
- PAYE cap: a limit on how much credit can be paid out in cash, linked to the company's PAYE and National Insurance bill.
- Claim notification: a short form that some companies must send to HMRC to say they plan to claim. Missing it can make the claim invalid.
- Additional information form (AIF): an online form with cost and project details that must be sent before the claim is made in the Company Tax Return.
The rules at a glance (as at October 2026)
These are the main points from HMRC's gov.uk guidance as at October 2026. Rates and conditions change at Budgets, so check the current gov.uk pages before each claim.
| Point | Merged scheme | ERIS |
|---|---|---|
| Applies to | Accounting periods beginning on or after 1 April 2024 | Same periods, for eligible loss-making SMEs only |
| Who can use it | Companies of any size | Loss-making SMEs whose relevant R&D spend is at least 30% of their total relevant spend (connected companies included) |
| How it's worked out | 20% of qualifying expenditure, as a taxable credit | Extra deduction of 86% of qualifying expenditure (186% in total), then a payable credit of up to 14.5% of the loss surrendered |
| Tax treatment of the credit | Taxable. For loss-makers the notional tax deducted is at the small profits rate of 19%; main-rate payers use 25% | The payable credit itself is not taxable |
| Cash cap | £20,000 plus 300% of the company's relevant PAYE and National Insurance liabilities for the period, unless an exemption applies. Under the merged scheme, any excess carries forward. | |
| Choice | A company eligible for ERIS can choose the merged scheme instead, but can't claim both on the same costs. | |
A few more rules from the same guidance, as at October 2026:
- Grace period for ERIS: a company can also meet the 30% test if it met it in the previous 12-month period and made a valid SME or ERIS claim on spend incurred on or after 1 April 2023.
- Contracted-out R&D: for these periods, the company that decides to carry out the R&D and plans it is generally the one that claims, whatever its size.
- Overseas costs: payments to contractors and EPWs for R&D carried out outside the UK generally can't be claimed, with limited exceptions. Northern Ireland SMEs claiming ERIS have their own rules here.
- Contractors and EPWs: for unconnected providers, 65% of the payment generally counts. Connected providers follow different rules.
- Cloud and data: for periods beginning on or after 1 April 2023, most cloud computing and data licence costs used in R&D can be included.
- Not claimable: capital spend, land, rent and rates, patents and trademarks, and costs of producing and delivering the product to customers.
- Costs must be paid before the claim is made.
Deadlines and admin
| Step | When | What "done" looks like | |
|---|---|---|---|
| ☐ | Check whether a claim notification is needed | Needed if it's a first claim, or the last claim was more than 3 years before the notification deadline (some other cases too) | Decision recorded, with the date of the last claim |
| ☐ | Send the claim notification, if needed | By 6 months after the end of the period of account (for a year to 31 December 2025, by 30 June 2026) | HMRC acknowledgement saved to the tax file |
| ☐ | Submit the additional information form | Before, or on the same day as, the Company Tax Return (CT600). If same day, the form goes first | Submission reference saved; figures match the CT600 |
| ☐ | Include the claim in the CT600 | With the return or an amendment, within HMRC's time limits (check gov.uk) | Claim figures agree to the working papers |
| ☐ | Consider HMRC advance assurance | Optional. HMRC runs services for SMEs; check gov.uk for current eligibility | Decision noted |
The additional information form asks for project descriptions (baseline, intended advance, uncertainties and how the company tried to resolve them), cost breakdowns, and the senior internal R&D contact. HMRC's guidance says a claim made without it won't be accepted.
Gathering the numbers, step by step
| Task | What "done" looks like | |
|---|---|---|
| ☐ | Get the list of qualifying projects from the technical lead or tax specialist | Each project has a name, start and end date, and a short description of the uncertainty |
| ☐ | Pull staff costs per person: salary, bonus, employer National Insurance, employer pension | Agreed to the payroll reports and the ledger for the period |
| ☐ | Get an R&D time percentage for each person, with the basis (timesheets, tickets, sprint data) | Each percentage is supported by evidence, not a guess at year-end |
| ☐ | List contractors and agency workers, with where the work was done and whether the provider is connected | Overseas and connected providers flagged; 65% applied to unconnected ones |
| ☐ | Split cloud hosting between R&D environments and production | Production hosting excluded; R&D accounts or tags identified |
| ☐ | Apportion software licences used partly for R&D | Basis written down and reasonable |
| ☐ | Check costs have been paid | Unpaid accruals at claim date identified |
| ☐ | Run the ERIS intensity test if the company is loss-making | R&D spend ÷ total relevant spend calculated, including connected companies |
| ☐ | Compare merged scheme and ERIS outcomes, if eligible | Both calculated; the choice and reasons recorded |
| ☐ | Check the PAYE cap | Cap worked out from PAYE and National Insurance liabilities |
| ☐ | Tie the claim back to capitalised development costs, if you capitalise | Same people and projects, consistent time splits (tax and accounting tests differ, but the data should agree) |
AI shortcut: give an approved AI tool the year's Jira or Linear ticket export (titles, epics, assignees, dates) and the project list, and ask it to suggest which tickets map to each R&D project and a draft time split per person. Engineering leads then confirm or correct it. AI drafts; people decide what counts as R&D.
AI shortcut: export the cloud bill by account, project or tag and ask AI to group lines into "production", "R&D/test" and "unclear", with the reason for each. Review every "unclear" line with engineering before anything goes in the claim.
Worked example 1: merged scheme, profit-making
MonthEndClub Co Ltd is a fictional UK SaaS company with a year ending 31 December 2025, so the period began after 1 April 2024 and the merged scheme applies. It pays Corporation Tax at the main rate.
| Cost | Workings | Qualifying £ |
|---|---|---|
| Developer staff costs | £240,000 total employment cost × 60% R&D time | 144,000 |
| Agency developer (unconnected, UK-based) | £50,000 paid × 65% | 32,500 |
| Cloud computing for R&D environments | Per tagged accounts | 12,000 |
| Software licences | Share used for R&D | 3,500 |
| Total qualifying expenditure | 192,000 |
Gross credit: £192,000 × 20% = £38,400. Because the credit is taxable, at 25% the tax on it is £9,600, so the net benefit is £28,800 (15% of qualifying spend).
Accounting: a common approach under IFRS and FRS 102 is to treat RDEC like a government grant and show it above the line, as other operating income or as a reduction in R&D costs. Many teams accrue it monthly once a claim is reasonably certain: £38,400 ÷ 12 = £3,200 a month.
| Account | Dr | Cr |
|---|---|---|
| RDEC receivable | £3,200 | |
| Other operating income: RDEC | £3,200 |
The tax on the credit sits in the Corporation Tax charge as normal. When HMRC settles the claim against the tax bill, the receivable is cleared against the Corporation Tax creditor.
Worked example 2: loss-making, ERIS vs merged scheme
Now assume MonthEndClub Co Ltd is loss-making. Same £192,000 of qualifying spend. Total relevant expenditure for the year is £600,000. PAYE and National Insurance liabilities for the year are £110,000. Trading loss before any additional deduction is £350,000.
Step 1: intensity test. £192,000 ÷ £600,000 = 32%. That's at least 30%, so ERIS is available.
| ERIS calculation | £ |
|---|---|
| Additional deduction: £192,000 × 86% | 165,120 |
| Trading loss after deduction: £350,000 + £165,120 | 515,120 |
| Enhanced expenditure: £192,000 × 186% | 357,120 |
| Loss surrendered: lower of £515,120 and £357,120 | 357,120 |
| Payable credit: £357,120 × 14.5% | 51,782.40 |
| Loss left to carry forward: £515,120 − £357,120 | 158,000 |
PAYE cap: £20,000 + (300% × £110,000) = £350,000. The credit is well under it.
Merged scheme instead: £192,000 × 20% = £38,400 gross. For a loss-maker, notional tax at 19% (£7,296) is deducted, leaving £31,104 that can be paid out after the other steps; the £7,296 is carried forward to set against future Corporation Tax. Because the credit is taxable income, it reduces the trading loss to £311,600 (£350,000 − £38,400), which carries forward.
ERIS gives about £20,678 more cash now (£51,782.40 − £31,104), but leaves only £158,000 of losses to carry forward instead of £311,600. Which is better depends on cash needs and when the company expects profits, a decision typically made with the company's tax specialist.
Accounting: the ERIS credit is commonly shown in the tax line, as a tax credit, because it comes from surrendering tax losses.
| Account | Dr | Cr |
|---|---|---|
| Corporation Tax receivable (R&D credit) | £51,782.40 | |
| Tax credit (P&L tax line) | £51,782.40 |
If you report under US GAAP: there's no direct US GAAP standard for government grants. Credits paid regardless of taxable profit are often accounted for by analogy to IAS 20 (above the line); credits that depend on the tax return may fall under ASC 740 (income taxes). Groups typically agree the policy with auditors.
Common mistakes and audit watch-outs
- Using last year's scheme. Periods beginning on or after 1 April 2024 use the merged scheme or ERIS. Old SME rates don't apply to them.
- Missing the claim notification. For first-time claimants (and some others), it's due 6 months after the period ends. Missing it can make the claim invalid.
- Filing the CT600 before the additional information form. HMRC removes the claim if the form isn't in first.
- Year-end guesses at time splits. Percentages without timesheets, tickets or other evidence are hard to defend.
- Including production hosting. Cloud costs for running the live product are not R&D.
- Overseas contractors. From 1 April 2024, R&D carried out abroad by contractors or agency staff is generally excluded.
- Applying the ERIS 30% test to the wrong numbers. Connected companies count, and the test uses relevant expenditure, not just the P&L total.
- Accruing a claim that isn't reasonably certain. Auditors look for evidence the claim is likely to succeed before a receivable is booked.
- Trusting AI on what counts as R&D, or feeding it payroll data in unapproved tools. AI can map tickets to projects, but judging technological uncertainty needs a competent professional. Staff data goes only into approved tools.
Key risks and controls
| Risk | Control | How to evidence it |
|---|---|---|
| Claim invalid due to missed deadline | Claim notification and AIF dates in the year-end calendar | Calendar entry and HMRC submission receipts on file |
| Staff costs overstated | Time splits backed by ticket or timesheet data, signed by engineering leads | Signed split per person, with source export |
| Ineligible costs included | Review list: overseas, production hosting, capital, connected providers | Completed review checklist in the working papers |
| Wrong scheme chosen | Both merged and ERIS calculated where eligible | Comparison schedule with the decision and approver |
| AI errors in mapping | Every AI-suggested mapping reviewed by a person | Reviewer initials and date on the mapping file |
Rates, thresholds and rules in this guide
Figures were checked against the pages below in October 2026. They change regularly (often each April or at Budget time), and we can't guarantee they're still current or right for your situation. Always check the official page before relying on them.
- R&D tax relief: the merged R&D expenditure credit scheme and enhanced R&D intensive support (GOV.UK): 20% merged scheme credit, ERIS 30% test and grace period, 86%/186% deduction and 14.5% credit, PAYE cap, choosing between schemes
- Work out your Research and Development tax relief (GOV.UK): the merged scheme and ERIS calculation steps
- CIRD112100: new RDEC payment steps (HMRC internal manual): notional tax deduction at the small profits rate and its carry forward
- Corporation Tax rates (GOV.UK): 19% small profits rate and 25% main rate
- Check what R&D costs you can claim (GOV.UK): contractor and EPW 65% rule, overseas restriction, contracted-out R&D, cloud and data costs, excluded costs, payment condition
- Meaning of research and development for tax purposes: guidelines (GOV.UK): what counts as R&D
- Tell HMRC you want to claim R&D tax relief (GOV.UK): who needs a claim notification and the 6-month deadline
- Additional information you must submit before you claim R&D tax relief (GOV.UK): additional information form timing and content
- Make a claim for R&D tax relief on your Company Tax Return (GOV.UK): time limits for making a claim
- Check if you can apply for advance assurance for your R&D tax relief claim (GOV.UK): HMRC advance assurance for SMEs
Key takeaways
- For periods beginning on or after 1 April 2024, it's the merged scheme (20% taxable credit) or, for eligible loss-making SMEs, ERIS (as at October 2026).
- Diary the claim notification (6 months after period end, where needed) and send the additional information form before the CT600.
- Run both calculations when ERIS is possible; the cash vs losses trade-off is a business decision.
- Let AI map and group; people decide what counts and sign off.
FAQs
Does building new SaaS features count as R&D?
Not automatically. It counts only where the work seeks an advance in science or technology and resolves uncertainty that a competent professional couldn't readily resolve. Much day-to-day feature work doesn't meet that test. HMRC's guidance on gov.uk sets out what qualifies.
Can we use AI to write the project descriptions?
AI can turn engineers' notes into a clear first draft in the format the additional information form asks for. The facts, the uncertainties and the final wording are checked by the people who did the work, and only approved AI tools are used for company data.
Should we accrue the credit monthly?
Many teams do, once they are confident a claim will be made and accepted, so the P&L isn't lumpy. Others book it when the claim is filed. The choice is typically agreed with the auditors.
Related guides
- Capitalising Software Development Costs: When and How
- Year-End Close Checklist for SaaS Companies
- Payroll Journals and Bonus Accruals at Month-End
- Cloud Hosting Costs: Accruing, Allocating, and COGS vs Opex
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This guide is general information about common practice. It isn't tailored to any business, and standards, tax rules and figures change. Check your own circumstances, the latest rules and, where needed, a qualified professional before acting.
Last reviewed: October 2026.