The introduction of the new UK Research and Development (R&D) single scheme is set to restructure the way companies access funding for their work on innovative projects. The new scheme will provide a more cohesive and consistent system for companies of all sizes to access R&D tax relief.
In the latest Autumn Statement, Chancellor Hunt confirmed that there will be an updated R&D scheme that combines the existing SME R&D Tax Relief and Research and Development Expenditure Credit (RDEC) programmes, representing a significant turning point in R&D Tax Relief. This consolidation, resulting from extensive reforms over the past year, aims to streamline the process and maximise benefits for businesses.
By establishing a single set of qualifying rules, this initiative will streamline the application process for companies seeking funding and ensures they directly benefit from their R&D activities. The government's strategic objective is to bolster the UK's position as a global leader in research and innovation.
In this blog we'll explore the key changes that will apply for accounting periods beginning on or after 1 April 2024 under the merged R&D tax relief scheme, as well as the potential impact on future claims, and steps you can take to prepare.
- What is R&D tax relief in the UK
- Overview of the merged R&D tax relief scheme
- Preparing for the merged R&D scheme
What is R&D tax relief in the UK
R&D tax relief is a government-backed initiative that offers financial incentives to companies investing in qualifying research and development activities. The programme encourages innovation and also plays a significant role in driving economic growth in the UK.
Overview of the merged R&D tax relief scheme
Starting 1 April 2024, companies in the UK will see a new and simpler R&D tax relief system, similar to the 'RDEC style' scheme. This means both large and small companies will have opportunities to access R&D tax relief and receive the support they need to drive their research and development efforts forward.
Relief rates & rules for losses
Under the new system, eligible companies will get a tax credit equal to 20% of their qualifying spending. This credit can be used to offset their tax liability or, with some adjustments, can be paid directly to the company in cash.
The R&D tax relief single scheme will also benefit loss-making companies by setting a "notional tax" at the small profit rate of 19% rather than 25%. This change will enable R&D-focused companies to retain a larger portion of their investments and (hopefully) influence them to invest in more ideas.
Subcontracted research and development
If you hire a contractor to do research and development for you as part of a contract, you can claim the benefit of the R&D costs. However, there are exceptions. For example, if the R&D isn't specifically part of a project but is started by the contractor themselves, they get the benefit instead. Figuring out who gets the benefit depends on the contract terms and the situation. So, it's crucial to carefully review contracts to ensure you don't miss out on any potential benefits.
Subsidised R&D expenditure
Within the merged R&D scheme, there's an important change regarding subsidised R&D expenditure. Unlike the current SME scheme, where rules often reduce the relief available if a company receives a grant for their R&D costs, the new scheme doesn't apply these subsidy rules.
This means that if a company obtains a grant to cover their R&D expenses, the relief available won't be reduced. Essentially, this change ensures that companies can still benefit from R&D tax relief even if they've received financial support or subsidies for their research and development activities, providing them with more financial stability and incentive to innovate.
Preparing for the merged R&D scheme
As the launch of the new R&D single scheme approaches, companies should proactively prepare for the upcoming changes to ensure a seamless transition and maximise their benefits. Here are some important steps to think about:
1. Review your current R&D activities: Take the time to assess your current research and development activities and identify any potential areas for improvement. This will help you determine if there are any additional projects or initiatives that could qualify for R&D tax relief under the new scheme.
2. Update your accounting and record-keeping processes: Consider updating your accounting and record-keeping processes to align with the new requirements resulting from the consolidation of the RDEC and SME R&D Tax Relief schemes. This will streamline the application process, ensuring that you accurately calculate and claim of your R&D tax relief benefits.
3. Familiarise yourself with the new qualifying rules: With the introduction of the merged R&D scheme, there will now be a single set of qualifying rules. It's important to familiarise yourself with these rules to ensure that your R&D activities align with the eligibility criteria. This will help you steer clear of any potential complications or delays when claiming your tax relief.
4. Seek professional advice: We recommend consulting with professionals if you're feeling uncertain about how the new scheme many impact you company or you need help navigating the changes. They can provide valuable insights and tailored guidance to help you make the most of the opportunities presented by the new scheme.
5. Stay updated on further guidance: As the implementation of the new merged R&D scheme approaches, it is crucial to stay updated on any further guidance or updates provided by the government. This will ensure that you have the most accurate and current information to guide your preparations and maximise your benefits.
As with any significant policy change, further guidance and best practices are expected to be released once the new R&D tax relief scheme is fully implemented and operational. If you have any questions about how these changes might impact you, please don't hesitate to contact our team.
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