Merging of SME and RDEC schemes: what the 2024 reform means now
If your company is preparing to make an R&D tax credit claim, understanding the April 2024 reform merging SME and RDEC schemes is crucial. In this post, we help large, tech-led businesses navigate the R&D tax relief landscape, offering clear, practical guidance, search-friendly structure, and forward-looking insights into Patent Box opportunities.
What changed with the April 2024 reform?
From 1 April 2024, HMRC combined the SME and RDEC regimes into a single, amended RDEC-style system (HMRC guidance). Whilst this simplifies the structure, it also raises the bar on documentation and compliance, making it essential for businesses to adapt their processes.
Are there still benefits for R&D-intensive or loss-making SMEs?
Yes. The merger streamlines the regime, however, enhanced relief continues for R&D-intensive SMEs that are loss-making, ensuring that innovation incentives remain intact. The ERIS remains below the line.
Why this matters for large tech-led businesses
Large, technology-driven enterprises must now follow one unified R&D tax credit regime, making it vital to align technical and financial records from the outset. Robust methods for identifying qualifying expenditure and clearly recording innovation outcomes are more important than ever.
Above the line
It is now important to review the research and development projects during accounts preparation to include the gross credit above the line, typically as Other Income, in the company accounts. The RDEC is included and taxed with the RDEC being deducted from the tax payable or being claimed as a tax credit if there are losses.
Will compliance scrutiny increase?
Yes. HMRC has intensified audit activity and is accelerating reviews, aiming for greater accuracy in claims and lower error rates. Internal governance, documentation, and transparency are now critical factors in protecting claims.
HMRC have recently released a tool that a competent professional can go through to give clarity on whether a project will qualify:
Practical steps to strengthen your claim strategy
- Align documentation from day one
Track R&D activities in real time, linking project narratives with costs and outcomes. Comprehensive technical and financial alignment is now a standard expectation, not optional. - Leverage the R&D disclosure facility proactively
If there is any uncertainty or potential over-claim, using HMRC’s voluntary disclosure facility (introduced December 2024 HMRC guidance) can significantly reduce penalties, even down to zero where no deliberate misconduct is involved. - Plan your pre-notification and AIF submissions carefully
The Additional Information Form (AIF) is now mandatory (HMRC guidance),this must be submitted before the tax return including the claim is filed. The reforms introduced a pre-notification requirement for new or infrequent claimants, to be in filed within six months of the period end. Ensure both are submitted on time to avoid invalidating claims. - Do not overlook Patent Box opportunities
If your company owns and develops qualifying IP, consider electing into Patent Box (HMRC guidance) to benefit from a reduced 10 per cent tax rate on patent-derived profits. A combined R&D and Patent Box strategy can significantly enhance tax efficiency. - Work with an experienced, integrated adviser
Having tax, financial, and technical advisers working together, not in silos, enhances both accuracy and efficacy. Establish clear collaboration between internal teams and external specialists to avoid last-minute errors.
We are here to help
Our specialist team can guide you through every stage of the R&D claim process, ensuring your business remains compliant and benefits fully from the available reliefs under the regime.