Major R&D scheme overhaul

Hillier Hopkins LLP

Chartered Accountants & Tax Advisers

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A new merged research and development (R&D) scheme has come into effect for periods beginning on or after 1 April 2024.

The new scheme unifies the old R&D expenditure credit (RDEC) for large companies and the small and medium entity (SME) relief schemes.

In line with the RDEC, the merged scheme offers a taxable credit of 20% of qualifying R&D expenditure. This is a net benefit of 15% of qualifying expenditure for claimants paying the 25% main rate of corporation tax, or 16.2% for companies paying the 19% small companies rate and loss-making companies.

Under the previous RDEC scheme, services contracted out to another individual or company did not attract relief except in very limited circumstances. Under the new scheme the approach to subcontracting is more generous, closer to the previous SME relief rules.

Enhanced R&D intensive support (ERIS)
A separate more generous regime is available for loss-making ‘R&D intensive’ SMEs. To qualify for the ERIS an SME must have a trading loss before R&D expenditure and qualifying R&D expenditure must be 30% or more of its total expenditure (reduced from 40% from 1 April 2024).

The existing subsidised expenditure rules for SMEs have been removed so expenditure will now qualify for the relief even if the R&D project is subsidised. This is good news for innovative start-up companies and claimants in industries where grant funding is common.

Third parties can no longer be nominated to receive R&D tax credits on behalf of claimant companies for claims submitted after 31 March 2024.

These changes are likely to have a significant impact on most if not all businesses involved in R&D. Contact us to discuss what this might mean for your business.