Merged R&D Tax Relief Scheme Essential Information

Following the 2023 Autumn Statement, where the UK government announced that a new merged R&D tax relief scheme would replace the existing schemes, the new merged RDEC scheme came into effect on 1st April 2024.

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.

Company situation Net relief
Profitable companies 15% net relief (equals £15,000 for every £100,000 spent on R&D)
Loss-making companies of those that make <£50k in profits. 16.2% net relief
R&D-intensive companies Up to 26.97% net relief (based on the credit rate)


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 1st April 2024

Company type Before 1st April 2023 After 1st April 2023
Loss-making SME Up to 33.35% Up to 18.6%
Profitable SME Up to 24.7% Up to 21.5%
R&D Intensive SME Up to 27%


The RDEC scheme

For accounting periods beginning before 1st April 2024

Company type Before 1st April 2023 After 1st April 2023
Loss-making SME 10.5% 15%
Profit making SME 10.5% Up to 16.2%
Larger company (non-SME) 10.5% Up to 16.2%


The merged R&D Scheme

For accounting periods beginning on or after 1st April 2024

Company type From 1st April 2024
Loss-making SME 16.2%
Profitable SME up to £50k profits Up to 16.2%
Profitable SME > £50k profits 15%
R&D Intensive SME Up to 27%
Larger company (non-SME) 15%


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.