Posted: 01 / 05 / 2024

Two R&D tax relief schemes became four, and will ultimately become two again.

At the time of writing (April 2024) it is somewhat of a ‘transitional’ phase for R&D tax incentives in the UK, and R&D tax claimants and their agents currently need to be familiar with no less than four R&D tax relief schemes, and changing rates of tax and relief to boot! This is all a product of the government’s attempts to simplify R&D tax incentives, we’ll let you be the judge of whether this has been achieved…

Whilst the definition of ‘R&D’ for these purposes is thankfully identical across the four schemes, there are a number of nuances in the qualifying costs and tax mechanics that differentiate them, the details of which require more in-depth discussion and consultation than is possible here. Some companies may have the luxury of choosing which scheme or schemes to claim under (at some stage), for others only one will be available, if any. The timing of the particular accounting period can also impact the rate of relief for that year, as can the extent to which a company is tax profitable (or tax loss-making) relative to the level of qualifying R&D expenditure.

Oh and one more thing, some of the changes were effective for expenditure incurred on or after a particular date (resulting in a ‘pre’ and ‘post’ pro-rata for relevant companies), whilst some of the changes are effective for the first accounting period starting on or after a particular date (meaning some companies will face the ‘new rules’ before others).

Altogether, this means that the most natural of questions for a company to ask: “What will be the value of our R&D claim?” isn’t necessarily as easy to answer as it once was… That said, the below summary of the four schemes and the possible rates of relief attaching to them (as a proportion of qualifying R&D expenditure), attempts to shed some light on what the answer might be!  If you’re understandably perplexed about what all this means for your company’s R&D claims, get in touch for a free consultation with:

EXPENDITURE INCURRED ON OR AFTER 1ST APRIL 2022SMESME INTENSIVE*RDECMERGED SCHEME **
Effective benefit18.9% to 33.4%N/A10.5%N/A
“Tax profits
(max benefit)”		24.7%N/A10.5%N/A
“Tax losses
(max benefit)”		33.4%N/A10.5%N/A
“Tax losses
(min benefit)”		18.9%N/A10.5%N/A
Main Corporation Tax rate19.0%19.0%19.0%19.0%


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EXPENDITURE INCURRED ON OR AFTER 1ST APRIL 2023SMESME INTENSIVE*RDECMERGED SCHEME **
Effective benefit8.6% to 21.5%12.5% to 27.0%15.0%N/A
“Tax profits
(max benefit)”		21.5%21.5%15.0%N/A
“Tax losses
(max benefit)”		18.6%27.0%15.0%N/A
“Tax losses
(min benefit)”		8.6%12.5%15.0%N/A
Main Corporation Tax rate25.0%***25.0%***25.0%***25.0%***


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ACCOUNTING PERIODS BEGINNING ON OR AFTER 1ST APRIL 2024SMESME INTENSIVE*RDECMERGED SCHEME **
Effective benefitN/A12.5% to 27.0%N/A15% to 16.2%
“Tax profits
(max benefit)”		N/A21.5%N/A15.0%
“Tax losses
(max benefit)”		N/A27.0%N/A16.2%
“Tax losses
(min benefit)”		N/A12.5%N/A16.2%
Main Corporation Tax rate25.0%***25.0%***25.0%***25.0%***
*Accessible only if meet ‘R&D intensive’ test, 30 or 40% of ‘total expenditure’ is R&D qualifying. Total expenditure = total expenses figure in P&L adjusted by adding any amount of expenditure used under s1308 Corporation Tax Act (CTA) 2009 and by subtracting any amount not deductible for CT purposes.
**Merged scheme treats tax loss-making companies ‘as if’ they are subject to the small profits rate of 19%, thus increasing the rate of cash credit from 15% to 16.2%
***Note some companies might be paying corporation tax under small profits rate of 19% or marginal rate 19% to 25% which would impact benefit rates. The rates shown here assume the company is paying corporation tax at a rate of 25%.