Kirby & Haslam

Are You Ready For the New R&D Scheme?


Recent months have felt tumultuous across the R&D world, from the sudden closure of large advisor firms to procedural changes being introduced. Following the spring budget and the long-term anticipation for the merging of the SME and RDEC scheme, the changes can be felt across UK businesses and have brought alongside them a growing sense of concern. We’re here to help ground your understanding of the current landscape, and assist in navigating these legislative changes.

From April 1st, the current guidelines for SME (Small and Medium Enterprises) and RDEC (Research and Development Expenditure Credit) are changing. Previously there had been two different schemes you could apply for R&D tax credits through, which had a myriad of different business requirements in how you qualified and submitted, particularly within their finances.

HMRC had announced last year their intent to merge these two schemes, and we’ll be seeing this brought into fruition come Monday. The resulting combination has changed the metrics for submission, bringing in new restrictions on oversees costs but incorporating the most generous PAYE and National Insurance contributions cap.

The rate of qualifying expenditure for the new merger will utilise the current RDEC’s 20%, so if you have previously claimed on this scheme, the change my not be felt as strongly. Moreover, for loss-making entities, a significant adjustment sees the application of the small profits rate of 19%, offering a more favourable environment for those yet to turn a profit.

Another important change has been to how subcontracting is handled. Previously, there had been some confusion within who would be making the claim when a company was subcontracted for the project. It has been determined that the company who began the initial project to overcome a challenge will be the company entitled to tax credits, with the definition of the R&D start being hugely important.

The removal of complex rules surrounding qualifying bodies and the overhaul of how subcontracted R&D is treated are indicative of a system striving for accessibility and effectiveness.

For businesses, the implications are substantial. A single set of rules and mechanisms promises clarity and reduces the burden of transitioning between different relief schemes. Moreover, the removal of restrictions on subsidised expenditure opens new avenues for SMEs to claim relief without unnecessary hindrances.

While there may be some initial costs associated with adapting to these changes, the long-term benefits are poised to outweigh them; at it’s core, these changes have been introduced to simplify the R&D system. Despite this, with such a drastic scheme update alongside a rocky innovation climate, there are bound to be some growing pains in this process and how it’s received.