R&D tax credits reform — additional tax relief and a potential merger

R&D tax credits reform — additional tax relief and a potential merger

HMRC has published draft legislation which proposes a merged R&D scheme. It is believed that combining the two schemes would help simplify the claims process, with just one set of rules applying to both small and large organisations.

If plans go ahead, they will be implemented in April 2024.

The key points of the proposal are:

  • The merged scheme would follow the same model as the current RDEC scheme, with credits based on expenditure credit
  • A credit rate of 20% will be available (subject to Corporation Tax)
  • The additional R&D relief available to R&D intensive SMEs will remain – this is worth an additional 27%
  • Payments made to subcontractors will be eligible, as per the current SME scheme
  • Overseas R&D expenditure will be excluded (unless there is a clear case for the research being impossible in the UK, for example testing in particular climates or environments)
  • Payments to UK-based Externally Provided Workers will only qualify if they are subject to PAYE

Full details of the HMRC proposed reforms to R&D tax schemes can be found here.

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