ERIS Claims for R&D Intensive SMEs
Enhanced R&D Intensive Support (ERIS) gives loss-making SMEs an 86% extra deduction on qualifying R&D and lets them surrender the loss for a payable credit at 14.5%, worth up to 26.97p per pound. It applies when relevant R&D spending is at least 30% of total relevant expenditure, tested across connected companies.
Who can claim ERIS?
A company can claim ERIS when it meets four conditions for the accounting period:
- It is an SME: broadly fewer than 500 staff and either turnover up to €100 million or a balance sheet up to €86 million, with linked and partner enterprises counted
- It is loss-making after taking the R&D deduction into account
- Its relevant R&D expenditure is at least 30% of total relevant expenditure, or the one-year grace period applies
- It has qualifying R&D under the government guidelines
ERIS is common in early stage life sciences, deep tech and software companies funded by equity, where most spending goes on engineers and scientists.
How much is an ERIS claim worth?
An ERIS claim is worth up to 26.97p for each pound of qualifying spend when the whole enhanced loss is surrendered. The figure comes from the 186% total deduction (100% plus the 86% enhancement) multiplied by the 14.5% payable credit rate. Compare that with about 16.2p under the merged scheme for a loss-making company.
| Scheme | Calculation | Approximate benefit |
|---|---|---|
| ERIS | £500,000 × 186% × 14.5% | £134,850 |
| Merged scheme | £500,000 × 20% less notional tax at 19% | £81,000 |
Illustrative only. Assumes the full loss is surrendered and the PAYE cap does not bite.
How is the 30% intensity test worked out?
The intensity test compares your relevant R&D expenditure with your total relevant expenditure, which is broadly the deductible revenue costs in your accounts with some adjustments. Where the company is connected to others, the figures for the whole connected group are combined, and HMRC has said it is looking closely at how groups do this. The test is one of the most common points of dispute in ERIS claims, so it is worth having a specialist model it before year end, not after.
Watch out: getting the intensity test wrong can turn a large expected payment into a much smaller merged scheme credit, and HMRC may recover any overpayment with interest. Ask your specialist to show the workings.
What does a specialist do on an ERIS claim?
On top of normal claim preparation, an ERIS specialist will check SME status including linked and partner enterprises, build the intensity calculation across connected companies, confirm whether the grace period applies, test the PAYE cap and any exemption, and decide whether surrendering the loss or carrying it forward is better for you. They will also flag where grant funding affects the picture.
Is ERIS always better than the merged scheme?
ERIS gives a higher cash payment for most qualifying companies, but not always the best overall result. If you expect to be profitable soon, carrying losses forward to use against future profits may be worth more than an immediate credit at 14.5%. A specialist should model both before you decide.
Step by step: how is an ERIS claim built?
Confirm SME status
Count staff, turnover and balance sheet including linked and partner enterprises. Investor ownership can change the answer.
Identify connected companies
List every company connected to the claimant, because the intensity test combines their figures.
Calculate relevant R&D expenditure
Total the qualifying R&D costs across the connected companies for the period.
Calculate total relevant expenditure
Total the relevant revenue costs from the accounts, applying the statutory adjustments.
Apply the 30% test and grace period
Check the ratio and, if it is below 30%, whether the previous period qualified.
Check the PAYE cap
Compare the payable credit with £20,000 plus 300% of PAYE and NIC, and test the exemption.
Which companies most often qualify for ERIS?
Companies that most often qualify for ERIS are early stage, equity funded and research led. Examples include drug discovery and diagnostics companies before revenue, deep tech hardware companies building prototypes, and software companies whose engineering team makes up most of the payroll. Companies with large sales, marketing or production teams usually fall below 30%, because those costs count in total expenditure but not in R&D expenditure.
What are the common ERIS mistakes?
- Testing intensity for the claimant alone and ignoring connected companies
- Using accounts figures without the statutory adjustments to total relevant expenditure
- Assuming SME status without checking linked and partner enterprises
- Overlooking the PAYE cap where most staff are contractors
- Claiming ERIS for a period where the company was not loss-making after the R&D deduction
HMRC has said it is examining how connected companies calculate the intensity ratio, so these points are where challenges are most likely.
Could the ERIS rules change?
Possibly. In the consultation published with the Autumn Budget on 28 October 2026, the government said it wants views on simplifying the ERIS intensity ratio, including how total expenditure is defined and how connected companies are treated, and on whether the PAYE cap exemption works as intended for smaller growing businesses. No changes have been decided, and the current rules apply until any new legislation takes effect. The consultation closes on 21 November 2026. Source: HM Treasury consultation.
How quickly is an ERIS credit paid?
An ERIS credit is paid after HMRC processes the return and accepts the claim. Timing varies with HMRC workload and whether the claim is selected for a check. Some companies use R&D advance funding from lenders to bridge the wait; if you do, compare the cost carefully against the credit and read the terms on what happens if the claim is reduced.
What should you ask an ERIS specialist?
- Can you show me the intensity calculation and the connected company figures?
- Have you checked our SME status including investors?
- Does the PAYE cap reduce our payable credit, and does the exemption apply?
- Would carrying the loss forward be worth more than surrendering it?
Frequently asked questions
What is the ERIS intensity threshold?
For accounting periods beginning on or after 1 April 2024 the threshold is 30%. Your relevant R&D expenditure must be at least 30% of your total relevant expenditure, with connected companies included.
What happens if we fall below 30% next year?
A one-year grace period can apply. If the company met the intensity condition in the previous period, it can still claim ERIS for one period in which it falls below 30%, provided it remains a loss-making SME.
Can a profitable company claim ERIS?
No. ERIS is for SMEs that are loss-making after the R&D deduction. A profitable SME uses the merged scheme instead.
Is the ERIS credit capped?
Yes. Payable credits are subject to a cap of £20,000 plus 300% of the company's PAYE and National Insurance liabilities, unless an exemption applies. Your specialist should check this early.
Is the government changing ERIS?
It is consulting. The October 2026 consultation asks for views on simplifying the intensity ratio and on the PAYE cap exemption. No changes have been made yet.
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