These reforms aim to streamline the process and provide enhanced support for R&D-intensive companies. Here’s a summary of the key changes:
Merged scheme
The most notable change is the merging of the two existing R&D tax relief schemes: the Small and Medium-sized Enterprise (SME) scheme and the Research and Development Expenditure Credit (RDEC) scheme. This new unified scheme is designed to simplify the application process and ensure consistency in the relief provided.
Enhanced R&D Intensive Support (ERIS)
A new feature of the merged scheme is the Enhanced R&D Intensive Support (ERIS). This is specifically targeted at loss-making SMEs that are heavily invested in R&D. To qualify for ERIS, a company must have at least 30% of its total expenditure dedicated to R&D activities.
Key benefits of ERIS include:
Additional deduction: Loss-making SMEs can deduct an extra 86% of their qualifying R&D costs, on top of the 100% deduction already available, making a total of 186% deduction.
Payable tax credit: Eligible companies can claim a payable tax credit worth up to 14.5% of the surrenderable loss, which is not liable to tax.
Changes to expenditure credit rates
Under the merged scheme, the rate of R&D expenditure credit has been set at 20%. This credit is taxable and is considered trading income for Corporation Tax purposes. The rate is designed to provide a consistent level of support across all companies, regardless of size.
Impact on businesses
These changes are expected to have several impacts on businesses:
Simplification: The merging of the schemes reduces complexity, making it easier for companies to understand and claim the relief.
Continued support for SMEs: The introduction of ERIS provides substantial support for SMEs that are heavily invested in R&D, encouraging further innovation.
Consistency: A unified rate for the R&D expenditure credit ensures a level playing field for all companies engaged in R&D activities.
Conclusion
The reforms to the R&D tax relief scheme effective from April 2024 represent a significant shift in how the UK supports innovation. By merging the existing schemes and introducing enhanced support for R&D-intensive SMEs, the government aims to foster a more innovative and competitive business environment.