Understanding the Merged Scheme – ‘New RDEC’

For accounting periods starting on or after 1 April 2024, the SME and RDEC schemes no longer apply. Profit-making SMEs and non-R&D intensive loss-makers will instead be entitled to the merged R&D scheme ‘new RDEC’). This is part of a broader reform to simplify reliefs and enhance support for innovative, R&D-intensive businesses.

What is the Merged R&D Scheme?

This is a taxable expenditure credit calculated as a percentage of qualifying R&D expenditure.

The merged scheme offers a similar level of benefit as the old RDEC scheme, however there are some new features:

• A lower rate of notional tax restriction for small profit-makers and loss-makers
• A more generous PAYE cap
• Restrictions on overseas contractor and EPW costs
• No restriction on subsidised expenditure

What is Enhanced R&D Intensive Support (ERIS)?

For accounting periods starting on or after 1 April 2024, enhanced support under ERIS is available to R&D intensive SMEs which are making a trading loss.

For loss-making SMEs with an R&D intensity ratio of 30% or more, ERIS provides enhanced benefits:

• An additional deduction of 86% on qualifying R&D expenditure
• Optional loss surrender for a payable non-taxable tax credit at 14.5%
• No restriction on subsidised expenditure

Overseas restrictions apply to contractor and EPW costs.

Why is this important?

These changes mean companies need to carefully assess their R&D intensity and eligibility under the Merged Scheme or ERIS. At Ad Valorem, our experts can help you navigate these rules and avoid costly errors.

Contact us to find out how we can support your business under the reformed R&D schemes.

FAQs

• What is the Merged R&D scheme – The Merged Scheme, from April 2024, combines the SME and RDEC schemes into a single system, offering a taxable expenditure credit.
• Who can benefit from Enhanced R&D Intensive Support? – Loss-making SMEs with an R&D intensity ratio of 30% or more can access enhanced support, including higher deductions and credits.
• What is the difference between the Merged Scheme and ERIS? – The Merged Scheme applies to most companies, while ERIS is for R&D-intensive loss-making SMEs.

Unsure how the Merged Scheme or ERIS applies to your company? Speak to our R&D specialists to understand your entitlement. Book a consultation now.

(E) enquiries@advaloremgroup.uk (T) 01908 219100 (W) advaloremgroup.uk