R&D tax relief reform 2024: Who benefits under the new merged scheme?

In 2024, the UK’s R&D tax relief regime underwent major reform, reshaping how companies claim support for innovative activity. The changes aimed to simplify the system, improve compliance and better target genuine technological advancement but the impact varies significantly across businesses.

What is the new merged R&D scheme?

From 1 April 2024, the separate SME and RDEC regimes were consolidated into a single merged scheme. Companies now receive an above-the-line credit of 20% of the qualifying expenditure, delivering a post-tax benefit of 15%.

This provides greater simplicity and predictability because the credit increases profits before tax, it is also more visible in financial statements, which can be attractive to investors.

Who qualifies for ERIS?

Alongside the merged scheme, the government introduced Enhanced R&D Intensive Support (ERIS) for loss-making SMEs whose qualifying R&D spend is at least 30% of total expenditure (reduced from 40% for accounting periods beginning on or after 1 April 2024). Eligible companies can receive a payable credit worth up to 27% of qualifying costs.

This is particularly beneficial for high-growth, innovation-led SMEs with significant development expenditure relative to turnover.

Does the new merged scheme have a greater compliance requirement?

Yes, HMRC has tightened compliance requirements for the merged scheme. Claims now require far more detailed technical and financial disclosures, and payment nomination rules have been restricted so credits are paid directly to claimant companies. These measures aim to reduce error and fraud but increase scrutiny.

Who are the winners and the losers in the new scheme?

• The winners:
  • Large companies gain from a simpler, more consistent framework and a higher 20% above the line credit rate.
  • Companies in AI, machine learning, and software development can now include cloud computing and data licensing costs.
  • Well-documented claimants experience smoother claims in a compliance-focused environment.
• The losers:
  • Conventional SMEs that do not meet the R&D intensity threshold will see lower effective relief compared to historic SME rates.
  • Firms reliant on overseas workers for R&D will no longer be able to claim these costs under the new rules.
  • Businesses with weak documentation are more exposed to HMRC enquiry and delays.

How do subcontracting rules work now?

For most companies, the subcontracting changes don’t fundamentally alter who can claim but they do raise the bar on documentation. Businesses need to be much clearer about why their activity qualifies and how their contracts support that position.

The focus has shifted from simply “who performs the R&D” to “who is driving it, who owns the IP, who bears the technical and financial risk, and who is genuinely contracting the work”. That’s now central to determining who can claim.

Key takeaways

1. The 2024 R&D tax relief reforms bring greater structural clarity but a more demanding compliance environment.
2. Larger companies and R&D-intensive SMEs are best positioned to benefit, while others may see reduced incentives.
3. Careful planning, robust documentation and a clear understanding of eligibility are now more important than ever.