In recent years, the UK government has made significant changes to the way research and development (R&D) tax relief is administered. One of the most notable shifts is the introduction of the new merged RDEC scheme, which consolidates the previous landscape of R&D tax credits. If your business is involved in technological innovation, it is crucial to understand the implications of this new scheme, how it works, and what it means for your company's bottom line. This article provides an in-depth look at the merged RDEC scheme, including R&D merged scheme examples, eligibility criteria, application processes, and practical tips for maximising your claim.

For accounting periods beginning on or after 1 April 2024, companies of any size which satisfy the R&D conditions can claim relief under the R&D expenditure credit (RDEC) scheme for qualifying expenditure. Prior to 2024, this scheme only applied to large companies. Since the scheme is no longer aimed principally at large companies, it is sometimes referred to as the ‘merged RDEC scheme'. It is worth noting that small loss making companies may benefit from claiming under the Enhanced R&D Intensive Support ('ERIS') instead. 

Understanding the Merged RDEC Scheme

The R&D merged scheme is the result of the government's efforts to unify the two main R&D tax relief programmes—the SME R&D tax relief and the R&D Expenditure Credit (RDEC). Previously, small and medium-sized enterprises (SMEs) and large companies had to apply through separate channels, each with its own rules and benefits. The merged scheme brings these together, aiming to prevent abuse of the system.

Why Was the Merged RDEC Scheme Introduced?

The old system was often criticised for being overly complex, with SMEs and large companies navigating different sets of eligibility criteria, rates, and claim procedures. In certain circumstances, claimant companies needed to claim under both schemes for the same project. From accounting periods beginning on or after 1 April 2024, the merged RDEC scheme addresses these issues by providing a single, unified set of rules. This makes it easier to understand what qualifies as R&D, how much can be claimed, and reduces the administrative burden on businesses and advisers. However, loss-making SMEs may still be able to claim more generous tax relief under the Enhanced R&D Intensive Scheme (ERIS).

Eligibility for the R&D Merged Scheme

Under the new merged RDEC scheme, the definition of qualifying R&D activities remains broadly the same. Businesses must be working on projects that seek to achieve an advance in science or technology, and the work must involve overcoming technical uncertainties that could not be easily resolved by a competent professional. Both SMEs and larger companies can now apply through the same scheme, provided their projects meet the qualifying criteria.

Key Features of the R&D Merged Scheme

  • Unified Claim Process: Businesses submit claims for R&D tax relief through a single application route, regardless of size.
  • Consistent Relief Rates: The rates of relief are harmonised, although some transitional arrangements may apply for claims relating to periods before and after the merger. The applicable R&D enhancement rate is 20% of qualifying revenue expenditure. 
  • Broader Accessibility: The merged scheme is designed to be more inclusive, ensuring that innovative companies of all types have clear guidance and support.
  • Focus on Genuine R&D: The scheme places greater emphasis on demonstrating that expenditure relates to genuine R&D activities, with increased scrutiny on supporting documentation.

R&D Merged Scheme Example

Let's consider a practical R&D merged scheme example. Suppose a mid-sized technology company develops a new product to increase energy efficiency and reduce manual workloads. The project involves overcoming technical challenges that have not been resolved elsewhere in the industry. Under the R&D merged scheme, all eligible costs—such as staff wages, materials, and subcontractor fees—can be included in the claim, and the company submits one unified application for tax relief.

Previously, if this company had been categorised as an SME, it would have applied under the SME R&D tax relief scheme and the large company scheme in respect of its contracted-out expenditure. 

How to Apply for the R&D Merged Scheme

Applying for the R&D merged scheme follows a set process:

1. Identify Qualifying Projects: Review your business activities to pinpoint projects that meet the criteria for R&D—those seeking advances in science or technology.

2. Gather Supporting Documentation: Collect evidence such as project plans, technical reports, and financial records showing the costs incurred in R&D activities.

3. Calculate Eligible Expenditure: Work out the total qualifying costs, including staff costs, materials, software, cloud costs, and subcontractor expenses.

4. Submit the Claim: Prepare your claim and submit the Additional Information Form through the designated portal. The claim itself is then submitted as part of the company tax return. The process is now the same for all businesses under the R&D merged scheme.

5. Respond to HMRC Queries: If HMRC requires further information, be prepared to provide detailed explanations and additional documentation.

For a more detailed walkthrough of the claim process, see our guide on how to claim R&D tax credits, which explains the steps and documentation in depth.

Benefits of the R&D Merged Scheme

The new R&D merged scheme offers several benefits for innovative businesses:

  • Greater Simplicity: Clearer instructions make the process less daunting.
  • Improved Cash Flow: Faster claims and harmonised rates help businesses reinvest in innovation more quickly.
  • Level Playing Field: Both SMEs and large companies have equal access to relief, encouraging collaboration and growth.
  • Reduced Risk of Error: A single set of rules minimises the chances of costly mistakes or missed opportunities.

Challenges and Considerations

While the R&D merged scheme is a welcome development, businesses must be diligent in ensuring their claims are accurate and well-supported. HMRC has increased its scrutiny of R&D claims in response to previous abuses of the system, so robust documentation and clear evidence of genuine R&D activity are essential. Companies should consider working with specialist advisers to maximise their claim and avoid pitfalls.

Tips for Maximising Your R&D Merged Scheme Claim

  • Start Early: Keep detailed records from the outset of your R&D project, including technical challenges, solutions, and expenditure.
  • Engage Experts: Consider partnering with R&D tax specialists who have extensive experience navigating the scheme.
  • Review Eligibility Regularly: As your project evolves, periodically assess whether new activities or costs could qualify for relief.
  • Stay Updated: The government may issue further guidance or updates—make sure you're aware of any changes that could impact your claim.

Conclusion

The introduction of the R&D merged scheme marks a significant step in supporting UK innovation. By streamlining the application process and making relief more consistent for claimants, the government is encouraging businesses to invest in research and development with confidence. Whether you're a small start-up or a large corporation, understanding the new rules and preparing a robust claim will help you make the most of this opportunity. For further guidance and personalised support, consult experienced advisers who specialise in R&D tax credits.

Frequently Asked Questions About the R&D Merged Scheme

1. What projects qualify for the R&D merged scheme? Projects must seek an advance in science or technology and involve overcoming technical uncertainties.

2. Can both SMEs and large companies apply? Yes, the merged scheme is open to all UK businesses undertaking qualifying R&D activities. Although loss-making SMEs may benefit from an ERIS claim. 

3. What costs can be included in a claim? Eligible costs include staff wages, materials, software, cloud costs, and subcontractor expenses directly related to R&D. Further information can be found in this article. 

4. How do I improve my chances of a successful claim? Maintain comprehensive records, seek expert advice, and ensure your claim is accurate and well-supported.

5. Where can I find more information? This article provides an indepth look at the R&D tax credit system.

By understanding and leveraging the R&D merged scheme, your business can unlock valuable tax relief to drive innovation and growth.