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The new merged R&D expenditure credit regime – who are the winners and losers?

Who are the potential winners and losers from the new merged R&D tax relief regime? In the first of a series of articles exploring the new regime, we look at who might benefit the most and who stands to lose out.

Introduction

The merger of the current research and development (R&D) tax relief regime for small or medium sized entities (SMEs) and the R&D expenditure credit (RDEC) regime for large companies was confirmed in the chancellor’s Autumn Statement 2023. The merged regime takes effect for accounting periods beginning on or after 1 April 2024. For many claimants this could significantly impact their future R&D tax relief claims.

We take a look at the key changes of the new merged R&D tax relief regime and explore who might be the potential winners and losers going forward.

Key changes

Whilst there are additional changes under the new merged regime, the above are likely to have the most impact.

Winners

Large companies are the most obvious group of winners.

Losers

Conversely, who stands to lose out from the new regime and who might see their claims reduced or their ability to claim removed entirely?

Summary

Overall, the new regime appears to shift the balance towards large companies at the expense of SMEs. This may initially seem like a strange policy choice for the government, but perhaps reflects HMRC’s current views on the level of fraud and error in the SME regime.

There will be specific fact patterns that mean some businesses gain or lose out disproportionately and therefore we urge all companies to look at their own situation and assess the potential impacts. It’s worth noting that for many claimants there will be up to two more accounting periods to apply the existing rules before the changes outlined above impact their claims.

Finally, look out for our next articles which will delve deeper and provide further analysis on specific aspects of the new regime.

To find out more about R&D tax reliefs and how we can help, please contact Graham Steele.

authors:graham-steele