Introduction – R&D regime from 1 April 2024

Research and Development (R&D) tax credits have been around since 2000. Initially aimed at small and medium enterprises (SMEs), with a later introduced large company scheme. The large company scheme was replaced by the Research and Development Expenditure Credit (RDEC) a number of years ago and, from 1 April 2024, this is now the default scheme for SME schemes too.

This is just one of the changes that the former government announced as part of the Autumn Statement 2023, in a shake up to R&D tax relief.

The following highlights some of those changes and compares treatment for periods before and after 1 April 2024.

Administrative requirements

There are two new requirements, which apply to new claims:

• An additional information form (AIF) must be submitted for all new claims since 8 August 2023. The end date of the accounting period in question is irrelevant. Even if it ended before 8 August 2023, the form needs to be submitted before the CT600 return.
  
  
• A claim notification form is also required if, broadly, no R&D claim has been made in the previous three years. This is to be submitted in advance of making a claim and within six months of the end of the relevant accounting period. This applies only to period beginnings on or after 1 April 2023.

Introduction of the merged RDEC scheme

The most significant changes implemented refer to the RDEC scheme and to its availability to SMEs.

Whilst previously RDEC scheme was for large enterprises and for certain types of expenditure incurred by SMEs that do not qualify for the SME scheme, under the new regime RDEC scheme can be claimed for qualifying expenditure by a company of any size which satisfies the conditions. This scheme is no longer only aimed at large entities.

Major changes have been made to R&D relief available affecting accounting periods beginning on or after 1 April 2024. While two different types of reliefs are still in place, these have been altered significantly: the R&D expenditure credit (RDEC) is now the default scheme for large entities and most SMEs, and a separate scheme is in place for 'R&D Intensive companies' which resembles the old SME scheme. Before April 2024, the SME scheme was the default for all SMEs.

This results in what is referred to as the merged RDEC. The relief is a taxable credit of 20% of the qualifying expenditure. Large entities or SMEs that previously used RDEC will not see as a material change. For companies that have used the SME scheme, these will notice that the maximum relief is lower. This example shows the two schemes side by side:

Loss-making SMEs

For profit-making companies, the relief is given as a reduction in the corporation tax liability as shown above.
If the company is loss-making, the RDEC is normally paid as the 20% credit net of 25% tax (i.e. a 15% credit), subject to a seven-step process.

Research-intensive SMEs

Another significant change is the measures implemented for enhanced support for R&D intensive SMEs, which results in a higher rate of payable tax credit for eligible SMEs. A separate SME scheme will apply for accounting period beginning on or after 1 April 2024 for SMEs deemed to be ‘research-intensive’.

This will apply to a company if its total R&D spend is at least 30% of its total expenditure.

Qualifying companies will enjoy an enhanced expenditure deduction of 86% and a payable tax credit of 14.5%.

A one-year grace has also been introduced. This protects companies, which might find themselves failing to meet the intensity threshold, by allowing them to continue claiming the enhanced support in that year, provided they met the intensity threshold and successfully claimed the enhanced support in the previous year.

Need help?
There are a lot of changes which can be daunting, but Larking Gowen is here to help. If you’d like to discuss your needs, please get in touch with your usual Larking Gowen contact. Call 0330 024 0888 or email enquiry@larking-gowen.co.uk. For more detailed information, please get in touch or read the HMRC guidance here.

Justyna Stanisz