Single R&D Tax Relief Scheme Proposed, Here’s What You Need To Know!

January 14, 2023

On January 13, HMRC stated that it had initiated a consultation on ideas to consolidate the several R&D tax relief programs into a single scheme. The consultation is a part of the government’s ongoing process of reevaluating its approach to R&D.

There are now two R&D tax relief schemes: the research and development expenditure credit (RDEC) and the small and medium-enterprise (SME) relief. The SME plan and the RDEC system provide further assistance on R&D costs via greater deductions and tax credits, respectively. When a small or medium-sized enterprise (SME) participates in the SME plan and incurs a loss, the SME may turn that loss into a tax credit payable by HMRC.

Eventually, a unified system based on RDEC will replace the current two methods. According to HMRC, this would make it easier for small and medium-sized enterprises to plan for the amount of relief they may apply for. At present, until the conclusion of the accounting quarter, they have no way of knowing how much money will really come into their company.

To curb tax fraud, new rules were enacted in April 2022 that restricted R&D tax benefits for small enterprises to only projects completed in the United Kingdom. Additional adjustments, which would generally synchronize the reliefs provided by the two current programs, were announced in the Autumn Statement 2022. The rates for the RDEC, SME deduction, and SME credit will all change from April 1, 2023: from 13% to 20% for the RDEC, 130% to 86% for the SME deduction, and 14.5% to 10% for the SME credit.

The consultation will end on March 13, 2023. If adopted, the revised plan would take effect on April 1, 2024.