Merged R&D Scheme (UK)

As of 1 April 2024, the UK government has introduced a new Merged R&D Tax Relief Scheme, which consolidates the previous SME and RDEC schemes into a single, streamlined credit system. This change aims to simplify the R&D tax landscape, provide consistency across businesses, and target relief towards genuine innovation.

The merged scheme is based primarily on the mechanics of the RDEC (Research and Development Expenditure Credit), applying a 20% taxable credit to qualifying R&D expenditure. It applies to most UK companies undertaking eligible R&D, regardless of their size.

At FI Group, we help businesses navigate this new framework, ensuring they remain compliant and benefit fully from available relief. With expert teams of engineers, scientists, and tax professionals across the UK and in 20 countries worldwide, FI Group provides tailored, strategic R&D claim support.

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Why the Scheme Has Been Merged

The merging of the SME and RDEC schemes follows government consultation and aims to:

Simplify the claims process
Reduce error and fraud
Improve fairness between small and large businesses
Align with international tax practices

This shift affects most businesses claiming R&D tax relief from accounting periods beginning on or after 1 April 2024.

Who Is Affected?

The merged scheme applies to:

All large companies previously claiming under RDEC
Most SMEs, who will now claim under the merged scheme rules (unless eligible for Enhanced R&D Intensive Support)

Special rules continue to apply to:

R&D-intensive SMEs, which may still benefit from enhanced payable credits (see our Enhanced R&D Intensive Support page)
Video games, film, and TV production companies, which claim under separate schemes like VGTR

Key Features of the Merged Scheme

1. 20% Taxable Credit

Companies can claim a 20% taxable credit on qualifying R&D expenditure. This is then subject to Corporation Tax (at 25%), resulting in an effective benefit of 15%.

2. Above-the-Line Credit

Similar to RDEC, the credit is shown as income in the company’s profit and loss account, improving visibility of R&D returns.

3. PAYE/NIC Cap

The payable element of the credit is capped at £20,000 plus 300% of the company’s total PAYE and NIC liability, helping prevent excessive claims by non-compliant firms.

4. Subcontracted R&D

Only R&D performed within the UK is eligible, unless there are exceptional circumstances (e.g., regulatory or geographical restrictions). Subcontracted R&D is now treated more consistently across business sizes.

5. Externally Provided Workers (EPWs)

Changes have been made to the treatment of EPWs, focusing on UK-based workers. FI Group helps companies assess employment structures and claim eligibility under the new rules.

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Key Features of the Merged Scheme

1. 20% Taxable Credit

Companies can claim a 20% taxable credit on qualifying R&D expenditure. This is then subject to Corporation Tax (at 25%), resulting in an effective benefit of 15%.

2. Above-the-Line Credit

Similar to RDEC, the credit is shown as income in the company’s profit and loss account, improving visibility of R&D returns.

3. PAYE/NIC Cap

The payable element of the credit is capped at £20,000 plus 300% of the company’s total PAYE and NIC liability, helping prevent excessive claims by non-compliant firms.

4. Subcontracted R&D

5. Externally Provided Workers (EPWs)

Changes have been made to the treatment of EPWs, focusing on UK-based workers. FI Group helps companies assess employment structures and claim eligibility under the new rules.

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Transition from SME/RDEC to Merged Scheme

Companies with accounting periods spanning the April 2024 changeover must split their claim proportionately between the old and new schemes.

For example:

A company with a financial year from January to December 2024 would claim under both the SME/RDEC schemes (Jan–Mar) and the merged scheme (Apr–Dec).

FI Group provides full guidance on this transition, ensuring no eligible expenditure is missed.

Qualifying R&D Expenditure

Eligible R&D activities under the merged scheme remain broadly aligned with previous definitions. Projects must:

Seek to make an advance in science or technology
Involve technical uncertainty
Require effort beyond routine development or commercial improvements

Qualifying Costs Include:

Staff and EPW costs
Software and consumables
Subcontracted R&D (UK only)
Contributions to qualifying bodies for independent research

FI Group offers detailed eligibility assessments to help identify and document all qualifying activity.

How FI Group Supports Clients

Navigating this new framework can be complex. FI Group offers:

Tailored eligibility reviews to determine how the merged scheme applies to your business
Quarterly in-year claim support for improved cash flow
Technical and financial documentation aligned with HMRC’s evolving requirements
Dedicated enquiry support, backed by a low HMRC enquiry rate
Cross-border R&D advice through our international network of 43 offices

Book A Meeting

How FI Group Supports Clients

Navigating this new framework can be complex. FI Group offers:

Tailored eligibility reviews to determine how the merged scheme applies to your business
Quarterly in-year claim support for improved cash flow
Technical and financial documentation aligned with HMRC’s evolving requirements
Dedicated enquiry support, backed by a low HMRC enquiry rate
Cross-border R&D advice through our international network of 43 offices

Book A Meeting

FAQs

Merged Scheme

Why Choose FI Group?

Speak to FI Group’s team of engineers, PhDs and tax specialists today. With offices across the UK and a presence in 20 countries, we’ll help you assess your R&D Tax Credits eligibility with confidence.