23 November '23

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When Jeremy Hunt got to his feet in the Commons on Wednesday to deliver the Autumn Statement, R&D advisers were not surprised to hear that the two main R&D tax regimes are to be merged next year. After all, draft legislation had been in place for a few months, and it had been strongly suggested that this would happen – as we outlined in an earlier article on the topic.

The main points have been summarised below. Largely it’s good news for RDEC claimants but not so good for SMEs. We will of course be reflecting on the changes in the coming days and weeks and will be updating our clients with what this will mean in practice for them.


  • When? All changes will come into effect in respect of accounting periods starting on or after 1 April 2024. Hence the first claims impacted are for periods ending 31st March 2025. This is different compared to the draft legislation published in July which would have applied the changes to expenditure incurred on or after 1 April 2024. Thankfully, this gives current claimants, SMEs in particular, more time to assess their R&D positions.
  • Rates: The rate offered under the merged scheme will be implemented at the current RDEC rate of 20%. Like under the RDEC regime, the 20% credit under the merged regime is taxable. At the main rate of 25% this results in a net tax benefit of 15%. However, the Autumn Statement adds that loss making companies apply a notional tax rate of 19% (instead of 25%) on the credit resulting in a net benefit of 16.2%. Good news for RDEC claimants. But a further blow for SMEs who’s rates already decreased from 1st April 2023 and will now decrease further (see exception below regarding SME intensive scheme).
  • PAYE/NIC CAP: It will use the more generous version of the PAYE/NIC cap as currently used in the current SME regime, namely £20,000 plus 300% of the claimant company’s total PAYE and NIC contributions plus the PAYE and NIC contributions of connected EPWs or connected subcontractors at the level of their R&D involvement. Good news for RDEC claimants.
  • Overseas Restrictions: As previously announced, restrictions on relief for expenditure on overseas EPWs and subcontractors will come into effect. This is for accounting periods starting on or after 1 April 2024. To qualify, the work undertaken by EPWs and subcontractors must have taken place within the UK. There are some exemptions, but these are niche.
  • Subsidised expenditure: There won’t be any restrictions relating to subsidised expenditure, for example where companies are in receipt of grants to fund their R&D. Currently restrictions apply for SMEs who typically are still able to claim under the RDEC regime (hence under the merged regime this won’t really change the net position for SMEs).
  • Subcontracting: Where a company subcontracts an R&D project, or a qualifying element of the project, the company contracting the work out can claim it. The Government wants the company making the decision to perform the R&D, and therefore bearing the risk, to get the relief. The company contracted to actually carry out that work may not claim for R&D activities. This expands the qualifying cost categories for current RDEC claimants who can’t claim subcontracted R&D (apart from some exceptions). SMEs can currently claim under the RDEC regime for work subcontracted to them by a Large Company, however under the merged regime they won’t be able to. This has big implications for sectors such as aerospace and automotive industries where supply chain companies are often reliant on work subcontracted to them. The new subcontracting rules will become an area of hot topic now Large Companies are able to claim and the distinction between subcontracted R&D and subcontractors “providing a service” will require greater focus. This is a topic for discussion in itself.
  • Cost categories: Cloud, data and maths costs, which came into effect as new types of claimable costs from 1 April 2023, will continue to be eligible under the merged regime.


  • The ‘SME intensive scheme’, for the most R&D intensive loss-making SMEs was announced at Spring Budget 2023 for R&D expenditure made on or after 1 April 2023.
  • A company was originally considered to be R&D intensive where its qualifying R&D expenditure was 40% or more of its total expenditure. This amount will be reduced from 40% to 30% of total expenditure for accounting periods starting on or after 1 April 2024.
  • A year of grace will be introduced to help in situations where exceptional spending might skew a SME’s intensity ratio for a year which would have led to the business moving out of the intensive SME regime.

The confirmation from the Chancellor of this merged regime finally provides the R&D sector with some certainty during a year of upheaval. A boost for RDEC claimants surely but additional blows for SMEs sadly.

If you’d like to discuss any points in the article, please get in touch.