Enhanced R&D Intensive Support for Loss-Making SMEs
Written and reviewed by the R&D Tax Accountants editorial team. Last reviewed 8 August 2026.
Enhanced R&D Intensive Support is the route kept open for loss-making SMEs that spend a large share of their money on R&D. It applies to accounting periods beginning on or after 1 April 2024 and carries forward the more generous rates from the old SME scheme rather than moving those companies onto the 20% merged credit.
Two conditions have to be met before the rates matter: the company has to be loss-making, and it has to be R&D intensive on HMRC's measure. Both are tested for the period, and the second is where most of the work sits.
Who Qualifies as R&D Intensive
The company has to be a small or medium-sized enterprise and it has to be loss-making, meaning it makes a trading loss for tax purposes before the additional deduction is taken into account. A profitable SME cannot use ERIS however much it spends on R&D, and claims the merged expenditure credit instead.
On top of that, relevant R&D expenditure has to be at least 30% of the company's total expenditure for the period. That is a ratio test on the whole business, not on a project, so a company can increase its R&D spending in absolute terms and still fail the condition because the rest of the business grew faster.
How Relevant R&D Expenditure Is Measured
Relevant R&D expenditure includes costs recognised under generally accepted accounting practice, pre-trading costs where an election is made under section 1045 of the Corporation Tax Act 2009, and amounts deducted under section 1308. Amortisation added back and payments to connected companies are excluded from the measure.
The exclusions are what catch companies out. A group that runs its development team through a connected service company can find that the spending it thinks of as its R&D does not count towards the intensity ratio at all. Where a group is involved, the test needs working through on the actual figures rather than assumed from the shape of the business.
The Grace Period Below the Threshold
A company that fails the intensity test in a period can still qualify if it met the condition in its previous 12-month period and made a valid claim to SME relief or to ERIS on expenditure incurred on or after 1 April 2023.
That is a real protection for a company with lumpy revenue. A single large contract can push total expenditure up and drop the ratio below 30% for one period, and without the grace period the company would move onto the lower merged credit for a year and back again. It is worth checking before concluding that a marginal period is a merged-scheme period.
ERIS Rates and the Cap
ERIS gives an additional deduction of 86% on qualifying expenditure, so 186% of the cost is deducted in total. Where that produces a loss, the company may surrender some or all of it for a payable tax credit of up to 14.5% of the surrendered loss. Those are the old SME scheme figures, which is the point of the regime.
The credit received in a period cannot exceed the PAYE and NIC cap unless the company is exempt from it. The cap is £20,000 plus 300% of the company's relevant PAYE and National Insurance contributions liabilities for the period, and it applies to the merged credit as well. There is more on how that works and where it bites on the PAYE cap page.
HMRC sets out both the intensity condition and the rates in its merged scheme and ERIS guidance. Companies at this stage of growth are often also looking at grant funding, which runs through Innovate UK rather than through the tax system.