New rules for accounting periods beginning on or after 1 April 2024.
Research and Development relief
Before April 2024, the way that tax relief was given for research and development expenditure differed depending on whether you were a small/medium sized enterprise or a large company. However, it was confirmed in the Autumn Statement 2023 that, for accounting periods beginning on or after 1 April 2024, a new merged scheme would replace the two existing schemes. That is, unless you are a loss-making R and D intensive SME; in which case you may qualify for a payable credit under the Enhanced R&D Intensive Support scheme.
Merged scheme
Expenditure credit
Under the merged scheme, companies will benefit from research and development expenditure credit (RDEC) at the headline rate of 20% on qualifying expenditure. This RDEC is deemed to be trading income and, therefore, will be subject to corporation tax. The post tax rates will vary depending on the level of taxable profit the company has, and the rate of corporation tax applied to those profits.
Subcontracted R and D
Previously, companies that fell within the RDEC scheme were unable to claim for costs incurred for outsourced research and development unless it was contracted to a very limited number of qualifying bodies. Under the merged R and D scheme, all companies will be able to claim for the costs of subcontractors used to carry out their R and D.
Subcontractors themselves can make a claim for research and developments relief only in very limited circumstances.
Removal of subsidised and expenditure rules
Under the previous SME scheme, a company would face restrictions on its R and D claim if the project received any form of subsidy. From 1 April 2024, these restrictions have been completely removed from the merged scheme, meaning that all companies undertaking R and D can now claim tax credits on expenditure that has been wholly or partially subsidised.
Capped relief for loss making companies
Under the merged rules, relief will be capped at £20,000 plus 300% of the total liabilities for PAYE and NIC for the company’s employees and directors.
Other changes
Externally provided workers
Costs for externally provided workers will only qualify as part of the claim if they relate to UK workers subject to PAYE.
Overseas R and D costs
From 1 April 2024, in order to encourage business activity in the UK, overseas outsourcing costs will only be allowed in an R and D claim in very limited circumstances.
Enhanced R and D Intensive Support (ERIS)
ERIS allows loss making R and D intensive SME’s to deduct an extra 86% of qualifying costs and claim a payable tax credit not liable to tax of 14.5%. A SME must be loss making before the additional deduction is taken. To meet the intensity condition, the relevant R and D expenditure must be at least 30% of its total relevant expenditure.
For more details about Research and Development Tax relief take a look at our FAQ pages below
What is research and development tax relief? (hillierhopkins.co.uk)
What is research and development and which costs qualify? (hillierhopkins.co.uk)
