The 2024 R&D tax reforms confused a lot of UK businesses — two schemes became one, with a special carve-out for R&D-intensive SMEs. Here’s the plain-English version for 2026, cited to HMRC. (dgm implements osFoundry as an independent partner; we are not tax advisers.)

What changed and when

For accounting periods beginning on or after 1 April 2024, HMRC merged the old SME and RDEC schemes into a single R&D Expenditure Credit (RDEC). Alongside it sits Enhanced R&D Intensive Support (ERIS) for loss-making, R&D-intensive SMEs. So instead of “which scheme am I in, SME or RDEC?”, the question is now “merged RDEC, or do I qualify for ERIS?”

The merged RDEC

  • Rate: 20% expenditure credit on qualifying R&D (the credit is taxable).
  • For loss-makers, the notional tax rate applied is the small profits rate of 19%, not the 25% main rate — which improves the net benefit for loss-making claimants.

Most companies, regardless of size, claim under this merged RDEC.

ERIS: the route for R&D-intensive SMEs

If you are a loss-making SME whose R&D is a large share of your spending, you may instead claim under ERIS:

  • Enhanced deduction plus a payable credit at 14.5%, worth roughly £27 from HMRC per £100 of qualifying R&D.
  • R&D-intensity threshold: R&D must be at least 30% of total expenditure for periods beginning on/after 1 April 2024 (it was 40% from 1 April 2023).

So a research-heavy, pre-profit startup is exactly the kind of business ERIS targets.

The PAYE/NIC cap

Both routes apply a PAYE/NIC cap on the payable credit: £20,000 plus 300% of the company’s relevant PAYE and National Insurance liabilities. This limits the payable element for companies that do genuine R&D but have very little UK payroll (e.g. heavily outsourced).

It’s relief, not a grant

Worth repeating: R&D tax relief reduces your tax or provides a payable credit after the spend — it is not upfront funding, and only genuine R&D qualifies. HMRC has tightened compliance, so contemporaneous technical records (the uncertainty you faced, the advance you sought) matter.

For how this applies specifically to AI and software work — what counts as a “technological advance” versus routine use — see our companion guide on R&D tax relief for AI and software.

Where osFoundry and dgm fit

dgm helps you scope an AI project so you can see clearly which parts are genuine development (potentially R&D-qualifying) and which are routine deployment, then implements on osFoundry with bring-your-own-key, usage pricing, and self-hosting in your own cloud where data control matters. For UK data-sensitive work we’d use an EU region or self-hosted deployment (osFoundry publishes US/EU/JP regions, not a UK one).

dgm is an independent integration partner, not a tax adviser, with zero integrations so far. R&D claims are a specialist discipline — use your accountant. To scope an AI project, book a consultation with dgm. General information, not tax advice; verify with HMRC and a qualified adviser.