Merged R&D scheme – essential information
The merged R&D tax credit program was confirmed in the fall announcement in 2023 and has been implemented for accounting cycles starting from or after April 1, 2024.
The new program represents a major shift to R&D tax incentives in a very short timeframe, so it’s imperative that your business understands how the merged scheme will affect your R&D tax claims going forward.
As the UK’s leading R&D tax consultancy, Hamilton Wood & Company is in the best position to offer forward-thinking actionable advice tailored to your company. 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 program sees two of the UK’s current R&D tax credit incentives merged into a single program:
Enhanced tax relief and payable refunds for eligible SME costs.
R&D expenditure credit (RDEC) for large companies, SME subcontractors and subsidized R&D expenditure.
The merged program is also known as the R&D single scheme, simplified scheme or new RDEC. The merged scheme has been put in place in a comparable manner to the current RDEC program with a few significant differences.
Who is affected by the merged R&D program?
If you’re applying for R&D tax credits, it is likely that you’ll be affected by the implementation of the merged scheme.
Despite the aim to simplify R&D tax relief by merging the previous SME and RDEC schemes, there are still variations you need to be aware of depending on the type of business you are and the agreements under which you’re conducting R&D.
If you’re an SME, you must identify whether you qualify for the R&D intensive incentive or the merged program. Keep in mind to be classed as an SME for R&D tax reasons you must have less than 500 employees and either a turnover of no more than €100 million or gross holdings of no more than €86 million.
You’ll also need to think about whether the decision to carry out R&D sits within your business or elsewhere in the supply chain. Typically, firms will not be able to apply if R&D has been contracted to them.
To learn more about the changes specific to you, 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 vendor OR SME WITH subsidized R&D now applying under RDEC. Remember the treatment has changed under the merged program.
A deficit-running R&D INTENSIVE SME with more than 30% of total expenditure on qualifying R&D.
A big firm with 500 or more employees and either more than €100 million turnover or €86 million gross assets.
Why was the merged R&D program introduced?
The government’s intention with R&D tax incentives is to encourage private sector investment in new developments benefitting the UK economy by boosting productivity and growth. A number of changes to R&D tax reliefs have been implemented since 2021 with the aim of making the incentive easier and preventing misuse. The merged program represents both the newest adjustment and the conclusion of this period of consultation.
When did the merged R&D scheme come into force?
The merged scheme for R&D tax credits applies for accounting periods beginning on or following 1 April 2024. It’s important to note that this is not for costs spent from the beginning of April as previously proposed.
So a business that makes accounts to 31 December each year will enter 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 join for its 31 March 2025 cycle.
The changeover for companies is streamlined with no need to claim under different systems for an accounting cycle that straddles 1 April 2024. The start date means that implementation of the merged scheme for some businesses will be later than previously planned.
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