Australian R&D Tax Incentive vs UK R&D relief

Australian R&D Tax Incentive vs UK R&D relief under the merged scheme and ERIS

For UK accounting periods beginning on or after 1 April 2024, HMRC runs a merged R&D expenditure credit at 20%, plus ERIS for loss-making SMEs whose R&D is at least 30% of spend. Australia's offset is a premium on the company tax rate, refundable under $20 million turnover. A group claims each on its own companies' R&D.

Reviewed by George WalchFacts last verified 24 October 2026

Australian R&D Tax Incentive and UK merged RDEC and ERIS side by side

Australian R&D Tax Incentive compared with UK merged RDEC and ERIS
Fact	Australian R&D Tax Incentive	UK merged RDEC and ERIS
Headline rate	Under $20 million turnover: corporate tax rate plus 18.5 points, refundable. Otherwise non-refundable: plus 8.5 points up to 2% R&D intensity, 16.5 points above	Merged RDEC 20% credit, taxable as trading income; ERIS 86% extra deduction
Cash for loss-making small companies	Refundable offset for aggregated turnover under $20 million, loss or not	ERIS payable credit up to 14.5% of the surrenderable loss, if the 30% intensity condition is met
Intensity test	Only sets the premium tier for non-refundable claimants (2% of total expenditure)	ERIS needs R&D of at least 30% of total expenditure, including connected companies
Upper limit	Premium applies to R&D expenditure up to $150 million a year	PAYE cap of GBP 20,000 plus 300% of relevant PAYE and NIC liabilities
Grant-funded costs	Claimable, but the premium on grant-funded R&D is clawed back through assessable income	No restriction on subsidised costs under the merged scheme or ERIS
Overseas work	Needs a positive overseas finding before it is claimed	Contracted R&D abroad cannot be claimed, with some exceptions
Before you claim	Register activities with AusIndustry within 10 months after the income year ends	Claim notification within 6 months after the period of account, unless a claim was made in the 3 years before that deadline

Can you use both?

Within one group, yes, but not on the same work. Each company claims its own country's incentive on R&D it conducts: the Australian company under Division 355, the UK company under the merged scheme or ERIS. Work the Australian company does in Australia for the UK company is claimable in Australia only within the s 355-220 conditions for R&D conducted for a foreign resident. Australian R&D done overseas needs an overseas finding, and HMRC restricts contracted R&D that takes place abroad. Inside the UK a company eligible for ERIS can elect the merged scheme instead, but cannot claim under both for the same expenditure.

Australian technology companies often open a UK subsidiary for sales and end up with engineers there too. That brings a second R&D regime into the same group. HMRC replaced its old RDEC and SME schemes for accounting periods beginning on or after 1 April 2024 with two new ones, and they work quite differently from the Australian offset.

How the UK schemes work now

HMRC's guidance describes two schemes with identical qualifying expenditure rules but different calculations:

Merged R&D expenditure credit. A 20% credit for trading companies chargeable to Corporation Tax. The credit is taxable as trading income, so its value after tax is lower than 20%.
Enhanced R&D intensive support (ERIS). For loss-making SMEs only: an extra 86% deduction (186% in total) and a payable credit worth up to 14.5% of the surrenderable loss. HMRC treats an SME as loss-making if it has a trading loss before the extra deduction.

Both are subject to a PAYE cap of GBP 20,000 plus 300% of the company's relevant PAYE and National Insurance liabilities, unless exempt. Excess merged-scheme credit carries forward.

Three contrasts that matter in practice

Intensity. ERIS needs relevant R&D of at least 30% of total expenditure, counted across connected companies worldwide, with a reasonable allocation where a connected company is overseas. For a UK subsidiary of an Australian parent, the parent's spend is part of that test. Australia uses intensity only to set the non-refundable premium (above or below 2% of total expenditure); a refundable company never faces an intensity test.

Grants. HMRC says there is no restriction on subsidised costs under the merged scheme or ERIS. Australia goes the other way: when a government grant relates to R&D spend you claimed, the ATO adds the premium on that spend back to assessable income through a clawback. On subsidised costs, then, the two UK schemes described here are more generous than Australia's clawback, on what HMRC publishes.

Deadlines. For accounting periods beginning on or after 1 April 2023, a UK company must send a claim notification within 6 months after the end of the period of account, or the claim is invalid, unless it made an R&D claim in the 3 years ending on that deadline. HMRC sets out exceptions: a claim it removed from a return does not count, nor do some amended claims for earlier periods. Australia's equivalent hard date is registration with AusIndustry within 10 months after the income year ends, every year.

An illustrative group

A hypothetical Sydney company has a UK subsidiary with five engineers. The Australian company registers its own experiments with AusIndustry, and its accountant prepares the R&D schedule. The UK company, if loss-making and part of a group whose R&D is at least 30% of total spend, may look at ERIS; otherwise the merged credit. Neither company includes the other's engineers. If the Australian company paid the UK team to run part of an Australian experiment, it would need an overseas finding first. If instead the Sydney team did work in Australia that the UK company directs and owns, the Australian claim would depend on the conducted-for rule and its s 355-220 conditions.

Where to go next

The Australian offset is priced in the R&D Tax Incentive calculator. For the US version of this question see Australian R&D Tax Incentive vs US R&D credit. The UK also has a Patent Box, compared on R&D Tax Incentive vs patent box.

Frequently asked questions

Our UK subsidiary is small but our Australian parent spends heavily on R&D. Does that help ERIS?

It can. HMRC measures the 30% intensity condition including connected companies worldwide, using a reasonable allocation where a connected company is overseas. The group's mix of R&D and other spend decides it, not the subsidiary's alone.

Does the UK have an equivalent of Australia's registration deadline?

Partly. A company must notify HMRC within 6 months after the end of the period of account unless it made an R&D claim in the 3 years before that deadline (HMRC lists exceptions, such as claims it removed from a return), and HMRC also requires an additional information form. Australia's registration with AusIndustry is due 10 months after the income year ends, every year.

Can the Australian parent claim for work its UK subsidiary does?

Only with a positive overseas finding, which requires among other things that the work could not be done in Australia. Usually the UK company claims UK relief on its own work instead. The reverse is a different rule: R&D the Australian company conducts solely in Australia for its UK affiliate can still be claimed in Australia if the s 355-220 conditions, including a written agreement between them, are met.

Is there an Australian version of ERIS's loss-making test?

No. Australia's refundable offset turns on aggregated turnover under $20 million and not being controlled by exempt entities, whether or not the company made a loss.

The R&D Tax Incentive is a self-assessment program. This page is general information, not tax, legal or financial advice; eligibility depends on your circumstances and you should seek independent advice for them.