Guidance and legislation on the proposed single RDEC scheme

HMRC has recently published a policy paper on the Research and Development R&D reform, particularly, the consultation on a single R&D Tax Credits scheme. The consultation ran from 13 January 2023 to 13 March 2023 and HMRC invited views on the design of a merged R&D tax relief scheme, merging the existing RDEC and the SME relief schemes.

The government has recently published a draft legislation on the proposed design of the merged scheme. The new measures would apply for accounting periods beginning on or after 1^st April 2024. The draft “R&D expenditure credit” scheme will be delivered in a similar way to the existing RDEC scheme as expenditure credit at 10% credit rate. However, unlike the existing RDEC, claimants will be able to claim for payments made as part of an R&D project which is currently possible in the SME scheme. It should be noted that overseas subcontracted expenditure will no longer be eligible unless it is necessary for the R&D purposes. The draft legislation also uses a more generous version of the PAYE/ NICs payable credit cap included in the current SME scheme. However, UK based Externally Provided Workers (EPWs) will only qualify if they are subject to PAYE. Additionally, companies with grants and subsidies will no longer be able to claim relief on the funded parts of their projects.

The draft legislation also introduced the new “R&D intensive SME” scheme for SMEs with at least 40% relevant R&D expenditure of its total expenditure for the claim period at a credit rate of 14.5%.

If you are struggling to work out whether your projects meet the definition of R&D for tax purposes or what the recent changes mean for your business Wilson Partners can help.