The merger of R&D Tax Credit schemes

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7 February 2024

Learn more about this new scheme and R&D rates change.

news : Policy, Tax and Tech
R&D

The anticipated merger of the two current R&D Tax Credits schemes, Research and Development Expenditure (RDEC) and SME R&D scheme is now official. This announcement was made in the 2023 Autumn Statement and will impact accounting periods beginning on or after 1st April 2024.

According to HMRC, the goal is to simplify and improve the R&D tax credit scheme by eliminating the set of qualifying rules that currently divides claimant companies between the two regimes, mainly based on their size.

For accounting periods beginning prior to 1st April 2024 – Two Schemes SME and RDEC

In order to claim tax relief under the SME R&D tax credit scheme, the claimant company should have fewer than 500 staff and a turnover of under 100 million euros or a balance sheet total under 86 million euros. If you do not fall under these limits, then the company will have to claim under the RDEC scheme. This would also be the case if the company has had grant funded projects.

For Accounting periods from 01st April 2024 – One Scheme and some additional benefits for R&D intensive companies

From the 1st April 2024 there will be one scheme regardless of the size of the company and whether it has received any grant funding.

As well as there being one main scheme the R&D rates have changed:

 For cost incurred Up to 31st March 2023For costs incurred between 1st April 2023 – 31st March 2024For accounting periods starting from 1st April 2024 onwards
 SMERDECSMERDECR&D Intensive companiesMerged schemeR&D Intensive companies
Profitable130% uplift on costs = 24.70% net benefitHeadline rate 13% (CT 19%) = 10.53% post tax86% uplift on costs = 21.50% net benefitHeadline rate 20% (CT 19% – 25%) = 15.00% – 16.20% post taxN/AHeadline rate 20% (CT 19% – 25%) = 15.00% – 16.20% post taxN/A
Loss-MakingCosts plus 130% uplift = 230 x 14.5% repayable credit = 33.35% subsidy10.53% subsidyCosts plus 86% uplift = 186 x 10% repayable credit = 18.60% subsidy15.00% subsidyCosts plus 86% uplift = 186 x 14.5% repayable credit = 26.97% subsidy15.00% subsidyCosts plus 86% uplift = 186 x 14.5% repayable credit = 26.97% subsidy
(As noted in the table, the net benefit for the RDEC scheme in the period 1st April 2023 – 31st March 2024 and the future merged scheme, coming into force for accounting periods beginning on or after 1st April 2024, will depend on the corporation tax rate applied to the profits of the company. For companies with profits lower than £50,000, the corporation tax rate would be 19% (small profits rate), resulting in a net benefit from the RDEC scheme of 16.20%. For those with profits over £250,000, the main corporation rate of 25% will be applied, leading to a 15.00% net benefit from the RDEC scheme. However, companies with profits between £50,000 and £250,000 can claim Marginal Relief, which means that their corporation tax rate would be between 19% and 25%, resulting in a post-tax benefit from the RDEC scheme between 15.00% and 16.20%.)

R&D Intensive Company Category

The introduction of the R&D intensive company category allows loss-making companies that are investing highly in R&D activities to benefit from higher tax R&D rates (see table above).

The qualifying criteria for an R&D intensive company is that its qualifying R&D expenditure represents 40% or more of its total expenditure. It should be noted that although this change concerns accounting periods beginning on or after 1st April 2023, it hasn’t been legislated yet. This is expected to happen in spring 2024, which means that companies that meet the above definition and would like to benefit from the higher R&D tax incentive rates would have to submit their tax return once it is legislated (or resubmit it) making sure they still meet the R&D submission deadlines.  

There was further good news in Autumn Statement 2023 with the R&D intensity threshold reducing from 40% to 30% for accounting periods starting on or after 1st April 2024. Additionally, companies that do not manage to meet this threshold due to unforeseen circumstances in a particular accounting period but have met it in the previous one will receive a year of grace in which they would be allowed to claim the enhanced benefit.

How can Finerva help

At Finerva the R&D claims report we prepare have always included the information which HMRC are now making mandatory. We have done this as it has provided the best support for a successful claim and provides the required backup when your company undergoes investment or acquisition due diligence. This means we are in an excellent position to assist you with all the requirements of the R&D scheme to make a successful claim. If you are seeking professional help regarding your R&D claim, get in touch with our experienced team of advisors or Ben Rule.

The information available on this page is of a general nature and is not intended to provide specific advice to any individuals or entities. We work hard to ensure this information is accurate at the time of publishing, although there is no guarantee that such information is accurate at the time you read this. We recommend individuals and companies seek professional advice on their circumstances and matters.