- Throughout 2023 the government continued to consult on the reform of R&D tax reliefs with the aim of ensuring the reliefs provide effective support for innovation, improving the competitiveness of the R&D expenditure credit (RDEC) and moving towards a simplified, single relief.
- Finance Act 2024 includes legislation for a new merged R&D regime to replace the existing RDEC and small and medium-sized enterprise (SME) schemes, as well as an additional tax relief for loss-making, R&D intensive SMEs (those with qualifying R&D expenditure of at least 30% of total expenditure (40% for an interim period)).
- The new merged regime provides a 20% above-the-line taxable credit, delivering a net benefit of 15% for profitable companies and 16.2% for loss making companies. Loss-making, R&D intensive SMEs will receive an additional deduction of 86% of qualifying R&D expenditure, delivering a net benefit of up to 27%.
- Under both regimes, relief is limited to UK and qualifying overseas expenditure and contracted out R&D is generally claimed by the ‘payer’ rather than the ‘doer’.
- The legislation also includes provisions to ensure that the credit can only be paid to the claimant company and not to a nominee.
- Timing: the new merged regime applies for accounting periods beginning on or after 1 April 2024. The R&D intensive relief applies for qualifying expenditure incurred from 1 April 2023 (some modifications came into effect from 1 April 2024) but claims have only been possible after 22 February 2024 when Finance Act 2024 received Royal Assent. The ban on payments to nominees applies to claims made on or after 1 April 2024.
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