What is the R&D Merged scheme?

Alongside the Enhanced R&D Intensive Support scheme, also known as ERIS, HMRC also announced another new scheme which is the R&D Merged Scheme. This means that the UK’s R&D tax relief regime changed for businesses with accounting periods beginning on or after 1 April 2024.

The Merged Scheme replaces the previous SME R&D tax relief scheme and Research and Development Expenditure Credit (RDEC) scheme. Rather than having separate schemes primarily based on company size, the Merged Scheme provides a common framework that can apply to both SMEs and large companies. It operates as a taxable expenditure credit, with the standard credit calculated at 20% of qualifying R&D expenditure. For loss-making SMEs, the ERIS scheme may be a more suitable scheme to follow for your R&D tax credit claim. You can find out more about the ERIS scheme here.

The changes go beyond combining the RDEC and SME R&D tax relief schemes together. The Merged Scheme introduced new rules around contracted-out R&D and restrictions on certain overseas expenditure. This can affect which company is entitled to claim and which costs can be included as qualifying R&D expenditure. Businesses should consider these rules alongside the underlying R&D requirements, including whether the project sought an advance in science or technology and involved scientific or technological uncertainty.