How merging R&D tax credit schemes will affect your business

Coming into play in April 2024, the new rules should prompt a revision of your business activities – you could make meaningful gains.

The government knows that Research and Development (R&D) plays a vital role in driving innovation and economic growth. To that end, support for R&D has been made available, even under challenging economic circumstances.

The UK government has decided that R&D tax credits need simplifying and to that end has merged the existing RDEC and SME R&D tax credit schemes in a bid to encourage more businesses to get involved.

According to HMRC:

“The measure establishes an above the line credit that allows companies to claim for their qualifying R&D costs, including contracted out R&D, and incorporates the more generous SME scheme PAYE and National insurance contributions cap. It also includes restrictions on relief for overseas expenditure which will come into effect for accounting periods beginning on or after 1 April 2024.”

What hasn’t changed: this scheme is still open to businesses pursuing genuine R&D projects; the core definition of R&D has been recently expanded and expenditure on things like staff, computer hardware, subcontractors and freelancers and consumables such as water, fuel and power still qualify.

Streamlined rates mean the end of juggling different rates. The new scheme offers a unified 20 percent relief rate, which translates to a sweet 15 percent net benefit based on the main corporation tax rate. Plus, the special 27 percent rate for R&D-intensive companies is sticking around for special R&D-heavy businesses.

Lose less: the more generous SME scheme loss cap rules means that if your project hits a snag, HMRC won’t take a bigger bite.

It can pay to outsource as the new scheme broadens the scope of what R&D costs you can claim for, similar to the current SME scheme. Be careful to stay within the limits set down by HMRC.

You should also be aware that overseas outsourcing costs won’t be eligible for claims under the new plan. The aim is to support UK based businesses first and foremost.

Finally, great news on grants: if you have a grant for your R&D, unlike the current SME scheme, the merged scheme won’t reduce the relief you get when someone helps fund your projects.

Should you be taking advantage of this scheme? R&D tax credits can be confusing and at Swoop, we have found several customers unknowingly engaging in activities which count as R&D. We’ve been able to boost their bottom line by signing up for the scheme and reducing their tax bill.

To learn more about how the merging of the schemes could impact your company, read more about R&D tax credits and how Swoop can help.