A Clear Explanation of the R&D Merged Scheme (RDEC)
Quick Answer
From 1 April 2024, most UK companies claim R&D Tax Relief under the merged RDEC scheme, which provides a 20% credit on qualifying costs and typically results in an effective benefit of around 15%.
Introduction
From accounting periods beginning on or after 1 April 2024, the UK’s R&D Tax Relief system was fundamentally restructured. The previous SME and RDEC regimes were replaced with a single unified framework: the merged scheme R&D Expenditure Credit (RDEC).
This change was introduced to simplify the system, improve compliance, and reduce error rates, while maintaining support for companies investing in innovation.
For most businesses, the practical outcome is a more consistent, RDEC-style calculation — combined with greater scrutiny from HMRC.
1. What Is the Merged Scheme RDEC?
The merged scheme RDEC combines the previous SME scheme and RDEC into a single credit-based system.
Key features include:
- A 20% expenditure credit applied to qualifying R&D costs
- A single calculation methodology for most companies
- A unified approach to subcontracting and entitlement rules
- Alignment with the previous RDEC-style “above the line” credit model
HMRC guidance: R&D Tax Relief: the merged scheme and Enhanced R&D Intensive Support.
The result is a more standardised system — but one that requires clear technical justification and accurate cost allocation.
2. Who Does the Merged Scheme Apply To?
The merged scheme applies to:
- SMEs (now claiming via RDEC rather than SME enhancement)
- Large companies
- Companies undertaking subsidised R&D
- Companies using subcontractors or externally provided workers
A separate route remains for R&D-intensive, loss-making SMEs under the Enhanced R&D Intensive Support (ERIS) scheme.
What Is ERIS?
A company qualifies as R&D-intensive if at least 30% of total accounting expenditure relates to qualifying R&D.
Where the company is also loss-making, it may be eligible for a higher payable credit than standard RDEC.
3. What Counts as Qualifying R&D?
The definition of R&D has not changed. To qualify, a company must be seeking an advance in science or technology by resolving scientific or technological uncertainty.
Examples include:
- Developing or improving manufacturing processes
- Engineering prototypes and resolving performance challenges
- Designing or testing software systems
- Reformulating materials or chemical compositions
- Investigating technical failures or system limitations
Routine or cosmetic changes do not qualify.
HMRC guidance: Check if a project qualifies as R&D for tax purposes.
4. Qualifying Costs Under the Merged Scheme
Eligible costs include:
- Staff costs (salary, NIC, pension)
- Externally provided workers (EPWs)
- Agency workers
- Software and cloud computing
- Consumables and prototypes
- Subcontractor costs (subject to entitlement rules)
Subcontracting Rules
Under the merged scheme, entitlement generally sits with the company that:
- Initiates the R&D
- Directs the work
- Bears the financial risk
HMRC guidance confirms this position: CIRD89760.
5. How the RDEC Is Calculated
The calculation follows a standard process:
- Identify qualifying R&D expenditure
- Apply the 20% credit rate
- Apply Corporation Tax
For a company paying the 25% Corporation Tax rate, the effective benefit is typically around 15% of qualifying R&D spend.
Loss-making companies may receive a slightly higher effective rate due to the notional tax restriction.
6. What Changed Under the Merged Scheme
Key changes include:
- SME and RDEC schemes combined
- Standardised 20% credit rate
- Removal of SME “super deduction”
- Alignment of subcontracting rules with RDEC
- Increased HMRC compliance expectations
7. Overseas R&D Costs
From April 2024:
- Overseas R&D costs are generally restricted
- Exceptions apply only in limited circumstances
This is a significant change, particularly for businesses using international suppliers.
8. What This Means for Your Next Claim
For businesses preparing R&D claims:
- Evidence is critical — technical narratives must be robust
- Cost allocation must be accurate
- Subcontracting arrangements must be reviewed carefully
- Claims should be prepared proactively, not retrospectively
9. What Business Owners Should Do Next
- Review 2024–25 projects for qualifying R&D
- Identify technical uncertainty early
- Maintain contemporaneous records
- Confirm subcontracting entitlement
- Prepare structured technical documentation
- Seek specialist advice where needed
Try our R&D Merged Scheme Calculator for an indicative estimate of your potential benefit.
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Frequently Asked Questions
What is R&D Tax Relief?
R&D Tax Relief is a UK incentive allowing companies to claim tax credits for qualifying scientific or technological development.
How much can companies claim?
The merged scheme provides a 20% credit, typically resulting in a 15% net benefit.
What is an R&D-intensive SME?
A company where at least 30% of total expenditure relates to R&D and which may qualify for enhanced support under ERIS.
What costs qualify?
Staff, subcontractors, software, consumables and certain indirect costs linked to R&D activity.
How long do claims take?
Typically 4–8 weeks, although HMRC enquiries can extend timelines.
Can companies still claim every year?
Yes, provided qualifying R&D activity continues and is properly documented.
How long do R&D Tax Relief claims take to be processed?
Processing times vary, but HMRC typically handles most R&D credit payments within 4 to 8 weeks. HMRC aims to pay around 85% of credit claims within 40 days, and in 2023–24 achieved around 92% within that timeframe. Claims selected for additional checks or enquiries will take longer.
How do I estimate my potential claim?
Lexmore’s R&D Merged Scheme Calculator provides an indicative estimate of your credit for accounting periods beginning on or after 1 April 2024. You can access it on the R&D Tax Relief page.