R&D Tax Credits in Northern Ireland: ERIS Explained

Introduction

The UK’s R&D Tax Relief system is largely consistent across the country following the introduction of the merged R&D Expenditure Credit (RDEC) scheme in April 2024.

However, companies based in Northern Ireland may face a different set of rules when claiming under the Enhanced R&D Intensive Support (ERIS) scheme.

These differences are particularly relevant for engineering, manufacturing and technology SMEs, where projects often involve international suppliers, subcontractors or specialist expertise.

Understanding how Northern Ireland ERIS works is essential to ensuring claims are structured correctly and relief is maximised within the applicable rules.

1. The UK-Wide R&D Framework

R&D Tax Relief is administered by HMRC and applies across the UK. Since April 2024, most companies claim under the merged RDEC scheme, which provides:

• A 20% expenditure credit
• An effective benefit of around 15% for companies paying the 25% Corporation Tax rate

HMRC guidance: R&D Tax Relief: the merged scheme and Enhanced R&D Intensive Support.

For certain companies, an alternative route exists under ERIS.

2. What Is the ERIS Scheme?

The Enhanced R&D Intensive Support (ERIS) scheme is designed for:

• Loss-making SMEs
• Companies with significant R&D investment

A company is considered R&D intensive where at least 30% of total accounting expenditure relates to qualifying R&D.

Where this threshold is met, the company may access a higher payable credit than under the standard merged RDEC scheme.

HMRC guidance: R&D Tax Relief: the merged scheme and Enhanced R&D Intensive Support.

3. The Key Northern Ireland Difference

The most significant difference relates to overseas R&D costs.

Rest of the UK (Post-April 2024)

• Overseas subcontractor costs are generally not eligible
• Overseas externally provided workers (EPWs) are restricted

Northern Ireland ERIS

Where the Northern Ireland ERIS rules apply:

• Overseas subcontractor costs may still qualify
• Overseas EPWs may still qualify
• The standard overseas restriction does not apply

This distinction can materially increase the value of a claim for businesses with international R&D activity.

4. Comparison: Northern Ireland vs Rest of UK

5. State Aid Rules in Northern Ireland

Unlike the rest of the UK R&D regime, Northern Ireland ERIS claims fall within EU State Aid rules.

Specifically, they are treated as de minimis State Aid, meaning there is a cap of:

€300,000 (approximately £260,000) over a rolling three-year period.

This cap includes:

• The additional benefit of ERIS compared with RDEC
• Any other de minimis State Aid received
• Aid received by other companies within the same group

If the cap is exceeded:

• The claim may need to be restricted
• Excess relief may fall back into the standard RDEC framework

6. When Do Northern Ireland ERIS Rules Apply?

The Northern Ireland ERIS framework typically applies where a company:

• Undertakes trade in goods, or
• Carries out electricity-related activities

This is particularly relevant for:

• Manufacturing businesses
• Engineering firms
• Product-based companies

These sectors commonly meet the criteria due to the nature of their operations.

7. Can Companies Opt Out of NI ERIS?

In some cases, companies can opt out of the Northern Ireland ERIS framework. This is only possible where the company:

• Does not trade in goods, and
• Does not carry out electricity-related activities

If a company opts out:

• Standard UK R&D rules apply
• Overseas costs are restricted
• The State Aid cap does not apply

The decision must be confirmed through the Additional Information Form (AIF).

8. Why This Matters for Engineering and Manufacturing Businesses

Northern Ireland has a strong base of:

• Engineering firms
• Manufacturing companies
• Technology businesses

These businesses often rely on:

• Overseas subcontractors
• Specialist international suppliers
• External development partners

Under standard UK rules, many of these costs would be excluded. Under Northern Ireland ERIS, these costs may still qualify, subject to the State Aid cap.

This can significantly increase the value of a claim where R&D activity is globally distributed.

9. What Businesses Should Review Before Claiming

Before submitting a claim, Northern Ireland companies should assess:

• Whether they meet the 30% R&D intensity threshold
• Whether they are classified as an SME
• Whether they undertake trade in goods
• The level of overseas R&D expenditure
• Total de minimis State Aid received over the past three years
• Group structure and aggregated aid limits

Careful planning is required to avoid unintended restrictions.

10. Practical Considerations for Claims

• Track R&D activity as it happens
• Maintain clear technical documentation
• Ensure cost allocation reflects actual project work
• Monitor State Aid limits across the group
• Seek specialist advice where eligibility is unclear

Lexmore’s View

The Northern Ireland ERIS framework introduces additional complexity within the UK R&D system, but it also creates opportunity.

For companies with:

• International R&D supply chains
• Significant development expenditure
• Strong engineering or manufacturing activity

the ability to include overseas costs can be valuable. However, this must be balanced against:

• State Aid restrictions
• Eligibility requirements
• Compliance obligations

Understanding the interaction between these factors is essential to structuring a robust and effective claim. See our explanation of the merged RDEC scheme for the wider UK context, or learn more about our R&D Tax Relief service.