The merged R&D tax relief scheme was confirmed in the Autumn Statement in 2023 and has been introduced for accounting periods beginning on or after April 1, 2024. The new program represents a major shift to R&D tax incentives in a very brief period, so it’s crucial that your company understands how the merged program will impact your R&D tax claims going forward.
As the UK’s top R&D tax advisory firm, Hamilton & Company Wood & Company is in the best position to offer forward-thinking actionable guidance tailored to your business. We have participated in every R&D discussion and always demonstrated our commitment to championing innovative businesses. Let us support you today.
What is the merged R&D scheme?
The merged R&D scheme combines two of the UK’s current R&D tax relief incentives brought together into a single scheme:
Increased tax relief and payable refunds for eligible SME costs.
R&D expenditure credit (RDEC) for large businesses, SME subcontractors and subsidized R&D costs.
The merged scheme is sometimes referred to as the R&D single program, simplified scheme or new RDEC. The merged program has been implemented in a comparable manner to the current RDEC program with a few notable distinctions.
Who is impacted by the merged R&D scheme?
If you’re applying for R&D tax relief, it is likely that you will be affected by the introduction of the merged scheme.
Despite the intention to simplify R&D tax relief by combining the former SME and RDEC schemes, there are still variations you need to be aware of depending on the type of business you are and the contractual arrangements under which you’re carrying out R&D.
If you’re an SME, you must identify whether you qualify for the R&D intensive program or the merged program. Remember to be classed as an SME for R&D tax purposes you must have less than 500 employees and either a turnover of no more than €100 million or gross assets of no more than €86 million.
You will also need to consider whether the decision to carry out R&D sits within your company or elsewhere in the value chain. Typically, companies will not be able to make a claim if R&D has been outsourced to them.
To learn more about the relevant changes, follow the links below.
Are you:
An SME with less than 30% of total costs on eligible R&D (the threshold to qualify for an enhanced rate for R&D intensive SMEs).
An SME SUBCONTRACTOR OR SME WITH SUBSIDISED R&D currently claiming under RDEC. Remember the treatment has changed under the merged program.
A loss-making R&D INTENSIVE SME with more than 30% of total expenditure on qualifying R&D.
A big firm with 500 or more staff and either over €100 million revenue or €86 million gross assets.
Why was the merged R&D scheme implemented?
The government’s aim with R&D tax incentives is to encourage private sector investment in innovation to enhance the UK economy’s growth and productivity. A series of adjustments to R&D tax reliefs have been made since 2021 with the aim of simplifying the incentive and protecting it from abuse. The merged scheme represents both the newest adjustment and the conclusion of this period of consultation.
When did the merged R&D program start?
The merged program for R&D tax credits applies for accounting cycles beginning on or following 1 April 2024. It’s crucial to understand that this is not for expenditure spent from the start of April as earlier suggested.
So a business that prepares accounts to 31 December each year will join the merged program for the first time when considering an R&D claim for its accounting cycle ending 31 December 2025, whereas one which closes accounts to March will enter for its 31 March 2025 period.
The changeover for businesses is simplified with no requirement to apply through different regimes for an accounting cycle that spans 1 April 2024. The start date means that implementation of the merged scheme for some businesses will be delayed beyond earlier plans.
