A new merged R&D tax scheme in 2024?

Yesterday the Government published draft legislation for the proposed merged R&D tax relief scheme, bringing together the SME and RDEC reliefs into a single, simpler scheme, or at least attempting to! 

It is clearly stated that no decision has yet been made about whether to merge the schemes—this will be made at a future fiscal event—but a full set of legislation has been provided, suggesting that the Government is leaning that way.

The general shape of the merged scheme is as follows:

• It would apply to expenditure incurred after 1st April 2024, so claimants may have to claim under both the current scheme and the merged scheme for straddling accounting periods;
• The scheme would be an expenditure credit of 20%, given in the same way as the current RDEC;
• The merged scheme would use the current SME PAYE/NIC cap rules;
• The SME intensive R&D rate remains and would be claimed under rules similar to the current SME scheme rather than the merged scheme;
• Subcontractor costs would be allowable for all claimants, including Large Companies;
• The merged scheme would incorporate the ban on overseas R&D costs (which was slated to come into force on 1st April 2024 anyway);
• Payments to UK-based EPW would only qualify if they are subject to UK PAYE;
• The definition of R&D and what constitutes eligible activities would remain the same.

The Government has yet to decide whether subsidies and grant funded projects would qualify for relief under the merged scheme—the draft legislation states that they would not, but further input and guidance on this point is being sought.

These changes are all being considered against the backdrop of previously implemented changes to the SME scheme from 1st April 2023 and the announced changes that are ready to hit from 1st August 2023. Whilst all of these are welcomed in the context of tackling fraud and non-compliance, we are slightly concerned about the rate of change in the scheme currently and the opportunity for confusion amongst service providers as timescales for changes seem to become ever-tighter.  

Whether these changes come to fruition in April or not, our users can be confident that we will keep on top of any legislative changes and will continue to empower them to deliver an efficient R&D tax claims service through our intuitive software and expert support services