*Guest blog by LimestoneGrey. If you would like to submit a guest blog please email [email protected].

Two loss-making biotechs each spend £100,000 on qualifying R&D in the same year. One receives £16,200 in cash. The other receives £26,970. Nothing they did in the lab was different. The difference? One ratio.

What Enhanced R&D Intensive Support is

ERIS is the relief reserved for loss-making SMEs whose qualifying R&D expenditure is at least 30% of their total relevant expenditure. It applies to accounting periods beginning on or after 1 April 2024 and pays up to 26.97p per £1 of qualifying spend in cash, against 16.2p under the merged scheme.

Three conditions must hold in the period. The company must be an SME: fewer than 500 staff, and either turnover under €100m or a balance sheet total under €86m, with connected and partner enterprises aggregated. It must be loss-making. And it must clear the 30% intensity test, counting connected companies on both sides. Fail any one and it claims the merged scheme instead.

The arithmetic

There are two steps to the numbers. The company deducts an additional 86% of its qualifying R&D expenditure on top of the normal 100%, a total deduction of 186%, then surrenders the resulting loss for a payable credit of 14.5% of the surrenderable amount.

£100,000 x 186% x 14.5% = £26,970.

The ERIS credit is not taxable, unlike the merged scheme credit, so nothing comes back off the headline. The "up to" still matters: the full rate assumes losses at least equal to 186% of the qualifying spend, and where losses are smaller the credit falls with them. Both routes, including surrendering less and carrying losses forward, are covered in our guide to ERIS.

Where the 30% test surprises people

Your R&D intensity ratio is calculated by dividing your relevant R&D expenditure by your total relevant expenditure; if the result is 30% or more, you meet the R&D intensity threshold.

A pre-revenue company spends £800,000 in the year, £300,000 of it relevant R&D: 37.5%, comfortably clear. The following year it builds out a commercial team, total expenditure rises to £1,100,000 and R&D is unchanged. Intensity falls to just over 27% and the test fails, though nothing about the science moved.

That is the first surprise for companies. The total expenditure shifts the ratio as hard as R&D does, so hiring or a step up in overheads can take an intensive company under the line. Our advice would be to always model it before the year end, not after; our ERIS intensity calculator works the ratio, connected companies included.

The second is the connected-company rule. Both sides of the ratio are worked across the company and its connected companies together, so an R&D-intensive company sitting alongside a larger trading business can fail on the group's numbers while passing easily alone. The SME test also requires you to consider the wider group position, making it important to establish your status upfront rather than during an HMRC compliance check.

The grace period

A company that qualified for ERIS in one period keeps it for one further period if its intensity then dips below 30%, provided the other conditions are met. A single lumpy year of spending does not immediately cost you the 26.97p rate.

Treat it as a buffer rather than a plan and model the move to the merged scheme before it arrives.

Grant funding no longer costs you the claim

This is the change grant-funded companies have been slowest to register. Under the old SME scheme, subsidised-expenditure rules restricted relief where a project had been grant funded, and a generation of advice told companies to keep grants and claims apart.

Those rules were abolished along with the scheme. For accounting periods beginning on or after 1 April 2024, an Innovate UK award or any other subsidy no longer blocks or reduces a claim under either current scheme, and neither is notified state aid. A company can take the grant and claim relief on the same project's qualifying costs.

The change lands harder in life sciences than anywhere else, because grant stacks run deeper here, and a great deal of guidance online still describes the abolished rules as though they were current. The position is clearly set out in grant funding and R&D tax relief.

What ERIS will not do

It will not follow you into profit. However intensive the company, ERIS is available only while it is loss-making, so the period it turns profitable it claims the merged scheme at 15p per £1 at the 25% corporation tax rate, a real planning question for a business approaching break-even. Nor does the rate buy any procedural latitude: HMRC checked around one in six R&D claims in 2023-24, its latest published figure, and an intensity calculation nobody clearly evidenced at the time is an easy thread for a compliance officer to pull.

If you want a considered view on your intensity position, or on a first ERIS claim, talk it through with a chartered adviser. We will tell you plainly where you stand, and if we do not think you should claim, we will say so.