New rules introduced for accounting periods commencing on or after 1 April 2024 means additional care needs to be taken to ensure you apply the correct scheme rules to your possible R&D and ensure you qualify for the relief. Applying the incorrect rules will result in your claim being rejected.
Below is a brief look at the various elements of the new scheme that can be put into effect.
Enhanced support for R&D intensive SMEs:
- Eligibility:
- Target loss-making small or medium enterprises (SMEs) whose R&D expenditure constitutes at least 30% of their total expenditure.
- Payable tax credit:
- Eligible SMEs can claim a higher payable tax credit rate of 14.5% if they meet the R&D intensity definition.
- Intensity threshold:
- A company is considered R&D intensive if its qualifying R&D expenditure is 30% or more of its total expenditure.
- Grace period:
- Provides a one-year grace period for companies close to the threshold, allowing them to continue claiming enhanced support if they met the intensity threshold in the previous year.
Merged R&D scheme:
- Effective date:
- From 1 April 2024, the existing SME and RDEC schemes have merged into a single scheme.
- Qualifying businesses:
- All qualifying businesses, regardless of staff levels or turnover, can now claim R&D spending relief at a rate of 20% on all qualifying expenditures.
These changes aim to simplify the process, encourage innovation, and make the UK an attractive place for businesses to invest in R&D. Whilst less beneficial to SME’s the merged scheme will remove some of the complexities where previously companies could claim under both the SME scheme and RDEC scheme.
Maximising benefits under the new scheme:
- Strategic planning:
- Identify eligible R&D activities: Understand which projects qualify for relief.
- Plan R&D expenditure: Allocate resources strategically to maximise qualifying expenses.
- Document everything:
- Maintain detailed records: Document R&D activities, costs, and evidence.
- Capture eligible costs: Include staff salaries, subcontractor costs, consumables, and software.
- Leverage the intensity threshold:
- If your company is R&D intensive (30%+ of total expenditure), claim the higher payable tax credit rate of 14.5%.
- Collaborate with experts:
- Consult your R&D tax advisors/Agents: Ensure accurate claims and compliance.
- Explore specialist R&D consultancies for guidance; it is not suggested to try to submit a claim without expert advice.
- Claim all eligible expenditure:
- Don't miss out on any qualifying costs.
- Consider costs beyond direct R&D, such as software licenses and consumables.
The next step
If you want to discuss your potential eligibility to make an R&D claim or discuss any of the above in more detail, please get in touch below.