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.

Not Sure if your projects Qualify?

Try our AI-assisted eligibility check

Our new AI-guided questionnaire is a user-friendly and efficient way to determine your eligibility. It requires no more than 10-15 minutes of your time to complete, but may offer some much needed clarity. If you would like to try it, please reach out to the Radius team using the form below. Our team of R&D specialists can also assist with any other queries you might have about a new or existing claim.

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