Quick answer: R&D intensity is qualifying R&D expenditure divided by total expenditure for the accounting period, expressed as a percentage. Both figures come from the company's profit-and-loss account. A ratio of 30% or above (the threshold since 1 April 2024) qualifies a loss-making SME for Enhanced R&D Intensive Support (ERIS), which pays a higher cash credit rate than the standard merged scheme.
What is R&D intensity?
The R&D intensity ratio is calculated as: qualifying R&D expenditure for the period divided by total expenditure for the period. Both figures are drawn from the company's profit-and-loss account for the period. Qualifying R&D expenditure means the costs that meet the merged-scheme eligibility criteria: primarily staff costs, subcontractor costs, and consumables attributable to R&D projects. Total expenditure is the aggregate of all costs in the period, including non-R&D costs such as sales, marketing, administration, and finance.
The 30% threshold was set at 1 April 2024. Previously, for a short window from August 2023 to April 2024, the threshold was 40%. Any company computing the ratio for a period crossing these dates needs to use the 30% threshold for the post-April 2024 portion, since the merged scheme and ERIS apply from that date.
How do you calculate R&D intensity?
Take the qualifying R&D expenditure figure that would appear on the merged-scheme claim. Divide it by the total of all expenditure lines on the profit-and-loss account (costs, not revenue). Express as a percentage. If the result is 30% or above, the company passes the intensity test for ERIS.
A software startup with £300,000 of total costs, of which £100,000 is qualifying R&D staff time, has an intensity ratio of 33%. It meets the ERIS threshold. A manufacturer with £2 million of total costs, of which £400,000 is qualifying R&D, has a ratio of 20% and falls under the standard merged-scheme rate.
Why does the 30% intensity threshold matter?
The difference between ERIS and the standard merged scheme is material for loss-making companies. Under ERIS, the cash credit rate is approximately 27% of qualifying spend. Under the standard merged scheme, it is approximately 15%. For a company with £500,000 of qualifying spend, the gap is approximately £60,000 in cash. Establishing whether the intensity ratio is above or below 30% is therefore one of the first calculations worth doing for a loss-making SME.
What are common mistakes when calculating R&D intensity?
The most common mistake is using revenue rather than expenditure as the denominator. The ratio is costs on costs, not R&D costs on turnover. A second mistake is including only direct R&D staff costs in the numerator without checking whether other qualifying costs (consumables, subcontractors, cloud costs) would also count, which can increase both the numerator and the denominator and affect the ratio. A third mistake is conflating the intensity test for ERIS with the separate question of whether the company qualifies as an SME for R&D purposes. Both conditions must be met.
To check whether your company meets the ERIS threshold, the eligibility checker walks through the key variables.
Related terms
- Enhanced R&D Intensive Support (ERIS)
- R&D Intensity
- Merged R&D Scheme
- Small and Medium Enterprise: R&D
Frequently asked questions
R&D intensity is the ratio of qualifying R&D expenditure to total expenditure for an accounting period, both measured from the company's profit-and-loss account. A ratio of 30% or above, the threshold since 1 April 2024, qualifies a loss-making SME for Enhanced R&D Intensive Support.
Divide the qualifying R&D expenditure used in the merged-scheme claim by total expenditure on the profit-and-loss account, then express the result as a percentage. A result of 30% or above meets the ERIS threshold.
The most common mistake is using revenue rather than total expenditure as the denominator. The ratio compares R&D costs against total costs, not against turnover, so using the wrong denominator can materially change the result.