Understanding the 2024 Reforms to the UK R&D Tax Credit Schemes

In a significant move to streamline and enhance support for innovation, the UK government has overhauled its R&D tax credit system. Effective from April 1, 2024, the previously separate schemes for SMEs and large companies have been consolidated into a unified framework. Here's what businesses need to know about these changes.

Key Changes Introduced

1. Merged R&D Tax Relief Scheme

The Research and Development Expenditure Credit (RDEC) and the SME R&D relief schemes have been merged into a single scheme applicable to all companies. This unified approach aims to simplify the application process and ensure consistency across businesses of varying sizes.

• Standard Relief Rate: A flat rate of 20% tax credit is now available for qualifying R&D expenditures.
• Above-the-Line Credit: The credit is applied above the line in financial statements, enhancing visibility of R&D benefits in company accounts.
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2. Enhanced Support for R&D-Intensive SMEs

Recognising the vital role of SMEs in driving innovation, the government has introduced enhanced relief for R&D-intensive SMEs:

• Eligibility: Loss-making SMEs spending at least 30% of their total expenditure on R&D activities.
• Relief Rate: Eligible companies can claim a higher tax credit rate of 27%.
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3. Territorial Restrictions on R&D Activities

To encourage domestic innovation, the new scheme imposes restrictions on R&D activities conducted overseas:

• Ineligibility of Overseas Expenditures: Costs associated with R&D activities performed outside the UK are generally no longer eligible for tax relief.
• Exceptions: Certain exceptions apply where specific conditions necessary for the R&D cannot be met within the UK.
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4. Revised Treatment of Subcontracted R&D

The new framework clarifies the eligibility of subcontracted R&D activities:

• Claimant Eligibility: Only the company that has decision-making power and bears the risk of the R&D project can claim the tax relief.
• Subcontractor Claims: Subcontractors can no longer claim R&D tax relief for activities conducted on behalf of another company.
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Implications for Businesses

These reforms aim to simplify the R&D tax relief process, encourage domestic innovation, and ensure that support is targeted effectively. Businesses should:

• Review R&D Activities: Assess current and planned R&D projects to determine eligibility under the new scheme.
• Evaluate Expenditures: Analyse R&D spending to ensure it meets the criteria for tax relief, particularly concerning the location of activities and the nature of subcontracted work.
• Consult Professionals: Engage with tax professionals to navigate the complexities of the new scheme and optimise potential benefits.

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Why Choose Claimly for Your R&D Tax Claim?

Many businesses struggle with R&D tax claims due to a lack of expertise, time constraints, or fear of HMRC audits. That’s why working with Claimly makes all the difference.
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✔ Expert Guidance – Our vetted tax specialists have deep expertise in both technical R&D analysis and financial tax compliance.

✔ Maximised Claims – We ensure you claim every eligible expense, increasing your refund or tax savings.

✔ Hassle-Free Process – We handle everything, from identifying qualifying R&D projects to submitting your claim.

✔ HMRC Compliance – We ensure that your claim is fully compliant, reducing audit risk.

✔ Fast & Efficient – We streamline the claim process so you can receive your benefit quickly.

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Calculate your claim here.