There have been significant R&D tax relief changes announced for the 2024 financial year; many continue from the changes made in the 2023-24 financial year and others are entirely new.

The reason behind the 2024 changes to R&D tax relief credits is to simplify the R&D tax relief credits in the UK. The UK’s R&D tax credit schemes have been seen to be quite different from other international countries’ R&D tax credit schemes due to the UK having two separate R&D tax credit schemes and so in 2024 changes will be made to bring the UK closer in line with other countries. 

This means that a new single R&D scheme, similar to the current RDEC tax relief scheme for all businesses, including large organisations and SMEs, will come into effect for accounting periods starting on or after April 1st 2024.

In 2023 the R&D tax credit relief rates were rebalanced so that businesses claiming under the R&D scheme will now receive a lower rate of tax relief, while those claiming R&D expenditure credit (RDEC) secure more generous rates. The changes show the government’s strong incentive for the government to tackle abuse and improve compliance with R&D tax credit relief schemes.

What Are The Rates Of Relief For The Merged R&D Scheme From April 2024?

For accounting periods starting on or after April 1st 2024, the merged credit rate will be 20% on all qualifying expenditures. This will be for all qualifying businesses regardless of their size.

Man talking to client on phone at a desk

What Else Is Changing For R&D Tax Credits From April 2024?

As well as bringing a merged scheme into use several important changes to R&D tax credits were announced during the 2023 autumn statement, including:

1. The Qualifying Bodies List Is Being Discontinued

The list of qualifying bodies, which RDEC applicants would have previously used if they wanted to claim contracted R&D costs, is being removed for the new merged scheme, giving larger businesses much more choice for their contracted projects.

 2. Relief Will Be Redirected To Those Carrying Our R&D Incentives

R&D tax credits will be received by the company that carries out the research and development instead of the subcontracted company. However, the subcontracted company can potentially claim R&D costs for any resulting R&D tax credits that aren’t connected to the client’s initial project.

 3. Subsidised Expenditure Rules Have Become Redundant

The changes to subcontracting mean that rules regarding subsidised expenditure become redundant so they’re being removed to be replaced by the merged scheme.

4. There Will Be New Restrictions On Overseas R&D Expenditure

Overseas costs for externally provided workers (EPWs) contributions and subcontractors to independent R&D are no longer eligible to claim R&D, except where it is unreasonable to replicate the conditions in the UK.

 5. The R&D Tax Credits Will Be Paid Directly To The Claimant

The Use of nominations for R&D tax credit relief will be ended in 2024 meaning that R&D relief payments will now go directly to claimants rather than a third party such as an R&D tax credit relief provider.

 6. R&D Tax Credits Relief Will Now Be ‘Above The Line’

The benefit will be ‘above the line’ under the new 2024 merged scheme which means like the current RDEC scheme will be seen as taxable income. HMRC sees this as a way of showing how R&D can boost profits therefore driving further investment.

Why Will There Be Changes To R&D Tax Relief Credits In 2024?

The government has a target to increase investment in R&D to 2.4% of UK GDP by 2027. R&D tax credit relief contributes to that goal by lowering the cost of innovation for UK companies and the government wants to make it more effective to increase.

The government is also introducing changes to the claims process to proactively tackle administrative errors and suspected abuse of the R&D tax credits relief scheme. As of April 2024, the separate R&D and SME tax credit schemes will be merged, both to streamline the relief and help to control the overall costs.


Additional Changes To R&D Tax Credits In 2024

Alongside the changes to R&D tax credit rates, there are also several technical and administrative periods starting on or after April 1st 2023 or April 1st 2024.

Definition Of R&D – The guidance around the meaning of research and development for tax purposes was updated on 7th March 2023 in time for the new financial year and the definition now states that ‘for research and development allowances this definition is extended to include oil and gas exploration and appraisal’ and this definition will also stand in the 2024-25 financial year.

Advanced Assurance – HMRC have now widened who qualifies for applying for advanced assurance of their R&D claims. All SMEs are now eligible to apply for advanced assurance for R&D as long as the company is not part of a group and none of the companies linked to the claiming entity have previously claimed the same R&D incentives. The application will remain straightforward via an online application form. However, HMRC will now contact businesses who are applying for advanced assurance to arrange a call to discuss the R&D in more detail. This is usually a short call but it could include a longer discussion or a visit to the company in more complex cases.

Extending Costs That Qualify For R&D Relief – R&D expenditure categories have now been extended to include the costs of datasets and cloud computing. However, there are exceptions such as when these relate to a “qualifying indirect activity” where you are including a small proportion of non-technical personnel time attributed to qualifying R&D activities.

R&D In Pure Mathematics – From 2024, R&D tax credits for pure mathematics will also qualify for relief and can form part of the qualifying R&D activities of the claimant from accounting periods beginning on or after April 2023.

Refocusing R&D Relief To UK-Based Activities – Changes to R&D tax credits that were originally planned for the 2023 financial year are now to take effect for expenditure in the 2024 financial year. From 2024, R&D activities will now have to be physically located in the UK for the expenses to be claimed back via R&D costs. UK companies who currently claim R&D costs paid to overseas group companies or third parties may no longer include these costs in their claims.

How Much Money Is The UK Government Committing To R&D Spending?

The government still sees R&D as essential to stimulating private sector investment and growing the UK economy. As such, they’re increasing public funding to £20 billion annually by 2024-25 which is the largest increase in R&D ever.

How Can CapEx Tax Help You To Deal With The 2024 Changes To R&D Tax Credits?

At CapEx Tax we have a team of tax specialists who are dedicated to helping businesses of all sizes to apply for R&D claims, if you’re having doubts about your R&D tax credit application then contact us today and we can discuss your application and see how the 2024 changes to tax credits affect your business.