Merged R&D Tax Relief Scheme Essential Information

The New merged R&D tax relief scheme

In order to simplify the process of claiming R&D tax relief, the government has combined its existing programs (SME and RDEC) into one. This new merged scheme will incorporate both of the following:

• Existing tax reliefs for qualifying SMEs (Small and Medium Sized Enterprises)
• Existing tax credits for larger companies, subcontracting SMEs, and government-funded projects (RDEC)

The new scheme is known as the RDEC merged scheme and in the main it is very  similar to the previous Research & Development Expenditure Credit (RDEC) scheme.

There are, however, some significant differences.

What does the new merged scheme mean?

For accounting periods beginning on or after 1 April 2024, businesses will claim qualifying R&D expenditure under the new merged scheme. This scheme offers a flat rate RDEC of 20%, which is the same as the previous RDEC scheme and since 1 April 2023 (13% prior to that).

This translates to a significant tax advantage depending on your company’s profits and R&D spending. Most profitable companies receive a 15% net tax benefit for their R&D spending (around £15,000 for every £100,000 invested in R&D). For loss making companies, it can be slightly more as the note below explains.

How will the merged scheme affect loss-making companies?

RDEC is treated as taxable income of the company and a notional tax rate is applied against the gross RDEC figure at the current rate of Corporation tax – main rate being 25% since 1 April 2023. However, for loss making companies and those with profits below £50k, the notional tax rate applied to the RDEC is 19%. This can increase the net tax benefit to 16.2% or £16,200 for every £100,000 spent on R&D.

New Scheme for loss-making R&D-Intensive SMEs

There is also a scheme for loss-making small and medium-sized businesses (SMEs) that heavily invest in R&D.

These companies qualify if their R&D expenses make up at least 30% of their total expenditure (as of April 1, 2024). This scheme (which is also applicable to companies meeting a 40% threshold between April 1, 2023, and March 31, 2024) offers similar benefits to the previous SME scheme:

• Increased qualifying R&D expenditure by 86% (previously 130%).
• Option to “cash in” losses for a 14.5% tax credit.

How have the incentive rates changed?

The SME scheme

For accounting periods beginning before 1^st April 2024

The RDEC scheme

For accounting periods beginning before 1^st April 2024

The merged R&D Scheme

For accounting periods beginning on or after 1^st April 2024

Understanding the new merged R&D scheme

Introducing the merged RDEC scheme brings new measures to understand the tax relief on R&D activities. It’s extremely important to make sure you are aware of the options available to you, and you should pay special attention to:

• Your company’s accounting period: Depending on your financial reporting cycle, you might need to start claiming under the new merged scheme immediately.
• Your R&D expenditure: If your business is a loss-making start-up heavily focused on R&D, you might qualify for the beneficial R&D intensive scheme.

Further details are available

Refer to our comprehensive Autumn Statement R&D summary for a complete breakdown of these changes, including updates on outsourced R&D and overseas R&D costs.