HMRC’s 2023 introduction of enhanced R&D tax relief for “R&D-intensive SMEs” marked a major shift in how the UK supports its most innovation-driven startups. Companies spending more than 40% of total costs on R&D became eligible for a higher payable credit.
Under the new Enhanced R&D Intensive Scheme (ERIS), this threshold has now been reduced to 30%, widening access to early-stage, research-intensive businesses.
Going forward, this threshold was reduced to 30% so more companies will be eligible (now called the Enhanced R&D Intensive Scheme or ERIS).
This has made the scheme even more accessible for early-stage, research-focused businesses.
Who Should Pay Attention?
This scheme is especially relevant to sectors like:
- Biotech and pharmaceuticals.
- Medtech companies building and testing prototypes.
- Deep tech, AI, or materials science startups.
- Any pre-revenue or early-stage business with high R&D spend.
If your startup is investing heavily in lab work, technical development, or early-stage trials, you may already qualify.
What’s the Benefit?
"Eligible R&D-intensive SMEs can receive a cash credit of up to 27% of qualifying R&D costs where they are loss-making. This enhanced rate is significantly higher than what’s available under the standard SME scheme following after the 2023 changes."
"This cash injection can be a lifeline, helping to fund another round of testing, extend your runway, or bridge to your next investment round without dilution."
Does your Business Qualify?
To access the scheme, your company must meet the R&D intensity threshold, meaning at least 30% (or 40% under the initial R&D intensive scheme period) of total company expenditure in the financial year must be on qualifying R&D activities.
Founders should
Understand the ‘30% test’ – Know how R&D intensity is calculated, and how total costs and qualifying R&D expenditure are defined.
Track R&D costs meticulously and ensure eligible costs (staff, subcontractors, consumables, software, etc.) are clearly recorded and segregated from non-R&D activities.
Coordinate with grant funding – If your R&D project is grant-funded, you may still qualify, but parts of the claim may need to go under the RDEC scheme. Coordination here is key to maximising your claim. This scheme can materially improve your funding position, but precision is key.
Common Pitfalls to Avoid
- Poor cost and project tracking – If you can't clearly evidence where R&D funds were spent, your claim could be reduced or rejected.
- Waiting until year-end – Engage early with advisors to monitor R&D intensity throughout the year. Knowing what may impact meeting the threshold is crucial and must be proactively managed.
Why This Matters
In today’s tight fundraising environment, non-diluted funding is more valuable than ever. The R&D Intensive Scheme rewards startups doing tricky, risky, transformative work and it’s this activity that defines the UK’s innovation ecosystem.
Used well, it can be a powerful lever to extend your funding runway, fund key hires or experiments and reduce reliance on investor capital.
At MHA, we help innovative businesses optimise R&D claims and align funding with long-term growth.
If you’re looking to strengthen your strategy, our team is here to help.
