Consultation to Merge Research & Development (R&D) Schemes

Currently, there are two R&D schemes in existence. There is the SME scheme which is available to small and medium enterprises and the RDEC scheme which is available to large companies. The latter of which awards less tax relief.

Consultation is currently under way to merge these schemes, and this could come into effect from April 2024.

The proposal is that these merged schemes will operate in a similar manner to the existing RDEC scheme. The proposed rate of relief would be at 20% of qualifying R&D expenditure. This awards a net benefit of 15% for a company on its R&D expenditure (if it will pay corporation tax at the 25% rate).

The above proposals mean that smaller companies will see a reduction in the benefit they are able to obtain from making R&D claims.

R&D Intensive Companies

For loss making R&D intensive companies it is envisaged the SME R&D rates of relief will remain at the current rates.

A company is deemed to be R&D intensive if at least 40% of its tax-deductible expenditure relates to R&D work. For these companies the R&D uplift will remain at 86%, with a tax credit being awarded at 14.5% on losses that have ben surrendered. This awards a repayable credit of £26.97 for every £100 spent on R&D activity.

Other Proposed Changes

The other key areas also being reviewed as part of this consultation include:

• Allowing the costs of subcontractor payments. This is currently generally not allowed for claims under the RDEC scheme. This will allow more outsourcing costs to be claimed.
• Significantly, HMRC may not allow a claim to be made if the project has received any form of subsidy or grant funding. Currently, R&D claims can be made if the projects are funded by a grant or a subsidy using the RDEC rates
• Limiting the relief significantly for outsourced overseas costs.

For further information on R&D, please contact us on 023 8046 1237 or email Joe Wilson.