24 Jun 2026
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With ongoing global economic uncertainty, read our blog to understand today’s Commercial Funding options for SME businesses.
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Commercial Funding in an Evolving Lending MarketChanges to R&D Tax Relief regulations will come into play from 1 April 2024. The current R&D Expenditure Credit (RDEC) and SME schemes will be merged, which is intended to simplify the claims process and provide an additional £280 million in tax reliefs per year by 2028-29.
Historically the SME regime has been more generous and forms the bulk of the claims made by our owner-managed client base.
So, how will the changes affect your business? and, what should you do to avoid future complications? Here’s what you need to know.
Transition to the merged scheme
Consolidating the current two schemes – R&D Expenditure Credit (RDEC) and SME scheme – into one single scheme aims to simplify the process, particularly for SMEs. However, for R&D intensive companies, complexities may arise if you’re navigating between the new merged scheme and outstanding claims on the current scheme.
Contracted Out R&D
The new scheme redistributes R&D relief entitlement from companies performing R&D activities, to the companies planning and funding the R&D activity. Identifying eligibility and rightful claimants poses challenges, emphasizing the requirement for clear, contractual agreements and on-going evidence gathering.
Claiming costs of subcontractors and Externally Provided Workers (EPW) is also changing. Subcontractors and EPWs must be UK based and subject to PAYE/NIC’s. There will be some exemptions, but these will be dependent on the work undertaken.
Exclusion of Overseas Costs
Overseas R&D expenditure will generally be excluded from relief. Companies should assess the impact on their claims, track overseas costs effectively, and maintain evidence to support exemptions.
Future Updates to Reporting
HMRC’s Additional Information Form (AIF), introduced in August 2023, requires you to list the external workers involved in the R&D activity, emphasising UK-based resources. Claims made without an AIF will be invalid.
3rd party bank details
After 1 April, submissions cannot include 3rd party bank details as the recipient of the R&D returns. Bank details must be for the claimant company only. If there’s an R&D payment and not a tax relief, this will go to the company, who must then pay their R&D agent
The merged scheme for R&D tax relief will apply for accounting periods beginning on or after 1 April 2024.
For current RDEC claimants the rate will increase, and for SME claimants the rate will reduce until the two schemes are merged
HMRC is encouraging businesses to proactively document and evidence their R&D throughout the planning phase and within their project management updates. This’ll help to safeguard your claim, putting you in a strong position to make a robust R&D tax relief claim and handle any potential enquiries from HMRC.
For more information about R&D Tax Reliefs, and to see if you business is eligible to claim, contact us to arrange a free consultation with our dedicated Innovation Tax Relief Team.
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