The government published draft legislation earlier this year, for the merger of the RDEC and the SME R&D relief schemes. In the Autumn Statement (November 22 2023) it was announced that for periods commencing on or after 1 April 2024 there will be a single merged scheme; the proposed merged scheme (SME and RDEC schemes) as well as an SME intensive scheme.
Autumn Statement 2023 updates*
The Autumn Statement announced the merger of the small and medium sized enterprises (SMEs) and the Research and Development Expenditure Credit ("RDEC") schemes.
Draft legislation on the merger of the schemes had previously been published earlier this year with a view to enabling the schemes to be merged from 1 April 2024, but there remained a lot of speculation as to whether the change would be made as quickly as the Government envisaged.
Following today's announcement, the merger will come into effect for accounting periods beginning or after 1 April 2024. In practice for most SMEs this will see the abolition of the more valuable SME scheme with the replacement of a slightly modified RDEC, enabling them to claim an above the line 20% taxable credit on its qualifying R&D expenditure.
For eligible loss-making SMEs however, it was announced that the R&D intensity threshold, which gives an increased rate of relief will reduce from 40% to 30%, along with the inclusion of a one year grace period for small fluctuations in expenditure, which are expected to be welcome changes by smaller R&D focused businesses.
The change is also expected to be welcomed by those companies historically claiming R&D relief under the RDEC scheme, which will see a number of enhancements as a result of the merger, including lifting some of the restrictions for subcontracted expenditure and the use of the more generous SME scheme PAYE and National insurance contributions cap.
Additionally, the policy paper published alongside the Autumn Statement set out that:
*Rules relating to subsidised expenditure in the existing SME scheme are no longer relevant, so these sections will be removed from the legislation for the merged scheme before it is published in the Autumn Finance Bill 2023.
For example, if a company receives a grant that covers part of the cost of its R&D, or if the cost of the R&D is otherwise met by another person, then (subject to the contracting out rules above) this will not reduce the amount of support available under the merged scheme.
This suggests that there will not be any exclusion of any form of R&D relief where a project and/or expenditure is subsidised as previously suggested.
*Wording taken from HMRC.
*[Article last reviewed and up to date as at March 22 2024 ]
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
