As we get further into 2025, companies with a March year-end will soon be considering their first R&D tax relief claims under the new merged Research and Development Expenditure Credit (RDEC) scheme. This change, which applies to accounting periods starting on or after 1 April 2024, replaces the SME scheme with an expanded version of RDEC, creating a single system for most businesses.
What Does the Merged RDEC Scheme Mean for You?
The new RDEC scheme consolidates both the SME scheme and the old RDEC, meaning that unless a company qualifies as an R&D-intensive SME, it will now claim under this unified approach.
Key points to note:
- RDEC is now worth 20% of qualifying R&D expenditure, but as it is taxable, the net benefit after corporation tax is around 15%-16.2%.
- Stricter compliance rules apply, particularly regarding subcontracted and overseas R&D.
- The aim is to create a more predictable system, but the changes mean companies must carefully review what qualifies before making a claim.
R&D-Intensive SMEs – A Different Route
Some SMEs will still be able to access a separate scheme known as Enhanced R&D Intensive Support (ERIS).
- Previously, a company needed 40% of total expenditure to be on R&D to qualify as R&D-intensive.
- From 1 April 2024, this threshold has been reduced to 30%.
- Under ERIS, eligible SMEs can receive up to 27% in tax relief.
If your company is near the 30% threshold, reviewing how you categorise expenditure is essential to ensure you do not miss out.
Understanding the Key Changes
Contracted-Out R&D – Who Can Claim?
HMRC has clarified that the company making key decisions and bearing financial risk is the one entitled to claim R&D relief. If you subcontract work, you may no longer be able to claim for it unless these conditions are met.
Overseas R&D Costs – New Restrictions
From 1 April 2024, most overseas third-party costs (subcontractors and externally provided workers) will no longer qualify for relief.
There are limited exceptions where the R&D must be carried out abroad due to:
- Environmental factors.
- Regulatory requirements.
- Geographic conditions that make UK-based work impractical.
If your company relies on overseas contractors, now is the time to reassess your claim strategy.
Preparing for Your First Claim Under the New Scheme
With these changes in place, ensuring that your first claim is accurate and fully optimised is more important than ever. Here is what you need to do:
- Check Your Eligibility – Confirm that your projects qualify under the new rules and determine whether you meet the R&D-intensive SME criteria.
- Pre-notify HMRC if Required – If your company has not claimed in the last three years, you must notify HMRC within six months of your accounting period-end.
- Review Your Costs – Ensure all qualifying expenditure is correctly categorised and ineligible overseas costs are excluded.
- Submit the Additional Information Form – This is now mandatory and must be filed before submitting your tax return.
- Maintain Proper Records – With HMRC increasing scrutiny, detailed documentation is essential to support your claim.
- Seek Expert Advice if Needed – Given the complexity of these changes, speaking to an R&D tax specialist could help maximise your claim and avoid compliance issues.
Final Thoughts
The introduction of the merged RDEC scheme marks the most significant shift in R&D tax relief in recent years. While it simplifies the overall framework, it also introduces new challenges—particularly for businesses subcontracting R&D or using overseas workers.
Companies that prepare in advance and fully understand these changes will be in the best position to maximise their claims and continue benefiting from R&D tax relief.
If you need expert guidance on your claim, we are here to help. Get in touch today to ensure your business makes the most of the support available.
Christopher Toms MA MAAT
Compliance Director, RandDTax