The Merged R&D Expenditure Credit Scheme
Written and reviewed by the R&D Tax Accountants editorial team. Last reviewed 8 August 2026.
For accounting periods beginning on or after 1 April 2024, the SME scheme and RDEC were replaced by a single merged R&D expenditure credit. It runs at 20% and is open to SMEs and large companies alike, which removed the size test that used to decide which scheme a company was in.
The change is not only a change of rate. The credit is taxable, the treatment of contracted-out R&D moved, and a separate route was kept open for loss-making R&D intensive SMEs. Companies straddling the commencement date will have two adjacent claims computed under different rules.
Which Periods Fall Under the Merged Scheme
The boundary is the start date of the accounting period, not the date the expenditure was incurred. A period beginning on or after 1 April 2024 falls under the merged scheme. A period beginning before that date stays on SME R&D tax relief or on RDEC, even where much of the spending happened after 1 April 2024.
For a company with a 31 December year end, the period beginning 1 January 2024 is an old-scheme period and the period beginning 1 January 2025 is a merged-scheme period. For a 31 March year end the switch is clean. Working out which set of rules applies is the first step in any claim, and getting it wrong invalidates the computation rather than merely reducing it.
The Merged Scheme Rate and Notional Tax
The credit is 20% of qualifying R&D expenditure. It is taxable income, so the headline rate is not the cash outcome. In the step calculation the credit is reduced by a notional tax charge at the rate applicable to the company, which is the main Corporation Tax rate of 25% or the small profits rate of 19%, with the small profits rate applied to loss-making companies.
Applying the lower notional rate to loss makers was deliberate: it leaves a larger cash amount with the companies least able to wait for it. The practical point for a company modelling the benefit is that 20% is the gross credit and the net figure depends on the company's own tax position.
Contracted-Out R&D Under the New Rules
For accounting periods beginning on or after 1 April 2024 the right to claim contracted-out R&D sits with the company that decided on the R&D and planned it, rather than with whoever physically carried it out. The contractor has to be able to show where that decision-making and planning sat.
This reversed the position for a lot of supply chains. A company that used to claim for R&D it performed under contract for a customer may no longer be the claimant, and a customer who never claimed may now be the one entitled to. Contracts written before the change rarely address it, so the evidence for who intended and contemplated the R&D usually has to be assembled from project records rather than lifted from an agreement.
HMRC restricts the extent to which payments to contractors and for externally provided workers qualify where the R&D activity takes place overseas. The detail of the exemption from that restriction is not settled in the main guidance, so it is not summarised here rather than guessed at.
Where the Merged Scheme Leaves Intensive SMEs
Loss-making SMEs that spend heavily on R&D were not moved onto the merged credit. They can claim Enhanced R&D Intensive Support instead, which carries forward the 86% additional deduction and the 14.5% payable credit from the old SME scheme for companies meeting a 30% intensity condition.
A loss-making SME therefore has a choice to work through rather than a single answer, and the qualifying expenditure rules are the same either way. The published guidance on both routes sits with HMRC, and companies looking at grant funding alongside relief will find the funding side through Innovate UK.