The tax benefit is often the most visible outcome of an R&D claim, but it is also the point at which misunderstandings and misaligned expectations can arise.
In the final article in our ‘Back to basics’ series, we look at how the tax benefit is calculated. If you missed the previous posts, we have covered eligibility, technical narrative and eligible costs.
The calculation of tax benefit from a R&D tax relief claim can be complicated. The R&D tax credit rates of relief differ between all of the schemes, and, in some cases, between companies in profit and those in a loss-making position. The current tax credit and enhancement rates are shown in the table below:
| Effective dates | Enhancement rate | Tax credit rate | Benefit taxed? | |
| SME scheme | Claims starting before 1st April 2024 | 86% | 10% | No |
| Old RDEC | Claims starting before 1st April 2024 | – | 20% | Yes |
| R&D intensive SME scheme | Claims starting before 1st April 2024, expenditure incurred after 1st April 2023 | 86% | 14.5% | No |
| New RDEC | Claims starting on or after 1st April 2024 | – | 20% | Yes |
| Enhanced R&D intensive support | Claims starting on or after 1st April 2024 | 86% | 14.5% | No |
New/old RDEC example:
New/old RDEC Calculation:
| Profit/(Loss) before tax | £150,000 |
| R&D qualifying expenditure | £100,000 |
| RDEC at 20% | £20,000 |
| Profit/(Loss) before tax | £170,000 |
| Tax charged at 25% | £42,500 |
| RDEC credit | (£20,000) |
| Tax payable | £22,500 |
| Net tax benefit* | £15,000 |
* Tax payable without RDEC £150,000 x 25% = £37,500
ERIS example:
ERIS Calculation:
| Loss before R&D | (£150,000) |
| Enhanced deduction* | (£86,000) |
| Revised Loss | (£236,000) |
| Maximum losses available to surrender** | (£186,000) |
| Tax credit received | £26,970 |
* £100,000 x 186% = £186,000. However, £100,000 of costs are already included in the profit figure so only £86,000 should be deducted
** £100,000 x 186% = £186,000. Surrenderable losses are the lesser of 186% of the qualifying expenditure and the unrelieved trading losses for the period.
SME scheme example:
SME Calculation:
| Profit/loss before R&D | £49,000 |
| Enhanced deduction* | (£86,000) |
| Revised Profit/loss | (£37,000) |
| Corporation tax at 19% | £0 |
| Maximum losses available to surrender** | (£37,000) |
| Tax credit received | £3,700 |
| Overall tax benefit | £13,010 |
* £100,000 x 186% = £186,000. However, £100,000 of costs are already included in the profit figure so only £86,000 should be deducted
** £100,000 x 186% = £186,000. Surrenderable losses are the lesser of 186% of the qualifying expenditure and the unrelieved trading losses for the period.
WhisperClaims calculates the tax benefit based on the qualifying expenditure entered into the platform, applying the correct scheme logic transparently.
While advisers will always need to consider the wider tax position of the company, robust and defensible figures are a critical starting point. Consistency across eligibility, narrative and costs helps ensure that the resulting benefit can be explained clearly and with confidence.
If you’re reassessing how claims are prepared following recent changes, our recent webinar our recent webinar, “R&D tax claims after the reset: Re-examining eligibility, evidence, costs & benefit”, brings together all four elements of the process.
And for a more in-depth exploration about how WhisperClaims can support your in-house R&D tax service, why not book a demo?
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