ERIS Scheme - Giving R&D Intensive Companies The Credit They Deserve
ERIS is part of the government’s renewed R&D tax relief framework, designed to supercharge innovation in small and medium-sized enterprises. It offers higher payable tax credits for startups investing heavily in R&D.
Effective for accounting periods starting on or after 1 April 2024, this scheme recognises that many cutting-edge startups carrying significant technical risk, aiming to achieve their technical objectives, often operate at a taxable loss while developing their product or technology.
Who Can Benefit?
To qualify for ERIS, your company must:
- Be a UK-based SME under R&D tax rules.
- Be loss-making for tax purposes before applying the R&D enhancement.
- Be R&D intensive, meaning at least 30% of your total expenditure must be on qualifying R&D activities.
Notably, there is also a one-year grace period, so if you temporarily fall below the 30% threshold but previously qualified, you can still access the scheme.
How Much Is the Relief?
The calculations are based on R&D expenditure incurred for accounting periods on or after 1 April 2024 and the SME rates in force at that date.
- The scheme works by giving additional corporation tax relief. The current rate of extra relief on qualifying expenditure for small and medium sized businesses (SMEs) is 86%. If a company spends £100,000 on qualifying R&D, an additional deduction of £86,000 increases the tax losses, which can then be surrendered for a tax credit.
- The ERIS scheme allows the company to surrender some or all of the loss to HMRC, in return for a 14.5% payable cash credit. In the above scenario, the company would surrender up to £186,000 of losses in return for up to a £26,970 payable cash credit (i.e. 14.5%).
Under ERIS, where there are taxable losses before R&D, startups can claim:
- An additional 86% deduction on qualifying R&D costs.
- A tax credit worth 14.5% of the lower of the enhanced R&D spend or the adjusted trading loss.
Example:
If your company spends £500,000 on qualifying R&D and incurs a trading loss of £600,000:
- Enhanced R&D deduction: £500,000 × 86% = £430,000
- Total trading loss (after enhancement): £600,000 + £430,000 = £1,030,000
- Surrenderable loss is the lower of:
- 186% of qualifying expenditure - £930,000
- Total available losses - £1,030,000
- Tax credit: £930,000 × 14.5% = £134,850 cash credit to the business
Why Is This Important?
Startups often operate in high-risk, high-innovation environments where traditional funding routes are limited. ERIS provides a crucial source of cash, helping you:
- Hire key technical talent
- Accelerate product development
- Navigate the pre-revenue phase with less stress
What Should You Do Next?
If your startup is investing heavily in R&D, let YesTax review your eligibility for R&D tax credits under the ERIS criteria.
Given the swathe of new compliance, it is imperative you seek professional guidance early on to ensure you're not only optimising your claim and fully compliant with HMRC rules, but also that you don’t miss out on the opportunity altogether.
Advanced Notification
There are now rules that require you to notify HMRC of your intention to make an R&D claim within 6 months of the year end in which you wish to make the claim, and so it’s imperative you access advice early on in your development journey to fully benefit from the relief. No notification, no claim.
Don’t miss out
The ERIS scheme is a strategic move by the government to help support innovation and entrepreneurship here in the UK. For R&D-intensive companies, it’s imperative that companies secure the funding available to enable their best chance of commercial success.
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