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How to claim R&D expenditure credit

9 May 2024

In the Autumn Statement last year, it was announced that the existing R&D Expenditure Credit and Small and Medium Enterprise Scheme would be merged from April 2024.

In the Autumn Statement last year, it was announced that the existing R&D Expenditure Credit and Small and Medium Enterprise Scheme would be merged from April 2024. The merged scheme R&D expenditure credit (RDEC) and enhanced R&D intensive support (ERIS) became effective for accounting periods beginning on or after 1 April 2024. The expenditure rules for both are the same, but the calculation is different.

Here’s the revised passage:

The Autumn Statement last year brought news of a merger. The existing R&D Expenditure Credit and Small and Medium Enterprise Scheme would combine from April 2024. The new scheme, merging R&D expenditure credit (RDEC) and enhanced R&D intensive support (ERIS), took effect for accounting periods starting 1 April 2024. Both schemes follow the same expenditure rules, but they differ in calculation.

Eligible trading companies subject to UK Corporation Tax can claim the merged RDEC scheme, a taxable expenditure credit. Even if you qualify for ERIS, you can opt for the merged scheme. However, you can’t claim both schemes for the same expenditure.

The merged RDEC scheme’s calculation and payment steps mirror the old RDEC scheme, with two exceptions:

  • Small profit-makers and loss-makers can access a lower rate of notional tax restriction.
  • A more generous PAYE cap is in place.

Corporation Tax applies to the merged RDEC scheme, as it counts as trading income.

For loss-making R&D intensive SMEs, the ERIS scheme offers the following:

  • An additional 86% deduction of their qualifying costs when calculating their adjusted trading loss, on top of the 100% deduction already in the accounts. This makes a total deduction of 186%.
  • A payable tax credit, tax-exempt, worth up to 14.5% of the surrendered loss.

The rule changes are intricate, so seek advice to ensure your R&D spend still qualifies. Note that there have been significant changes to the restrictions on overseas R&D activities, which are now generally restricted.

Source: HM Revenue & Customs Mon, 06 May 2024 00:00:00 +0100

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