The Merging of the SME and RDEC Schemes into a Singular Regime
The UK’s R&D tax relief framework underwent one of its most significant structural reforms effective from 1 April 2024, with the integration of the previously distinct SME and RDEC schemes into a single, unified regime.
Historically, small and medium-sized enterprises (SMEs) and large companies operated under separate relief mechanisms, each with distinct qualifying rules, rates, and reporting obligations. The merged regime eliminates this bifurcation, bringing all claimants, regardless of company size, under one common set of rules, modelled predominantly on the former RDEC structure.
Under the unified regime:
All qualifying R&D expenditure is now eligible for an above-the-line taxable credit, simplifying interaction with Corporation Tax.
The previous enhanced deduction under the SME scheme has been replaced by a single credit mechanism applied consistently across businesses.
Subcontracted R&D rules have been materially tightened, with relief largely restricted to UK-based subcontracted activities unless narrowly defined exemptions apply.
The PAYE/NIC cap continues to apply, limiting repayable credits for loss-making companies where limited payroll liabilities exist.
Mandatory Additional Information Forms (AIFs) have been introduced, requiring detailed technical and financial disclosures at the point of submission to enhance transparency and reduce generic or unsupported claims.
While the unification is intended to streamline administration, its practical application places greater emphasis on real-time documentation, technical substantiation of qualifying activities, and internal governance procedures to ensure ongoing compliance.
For businesses, these reforms demand a more proactive and technically-led approach to R&D tax relief, where robust project documentation, contemporaneous evidence gathering, and clear articulation of technological uncertainties will play an increasingly pivotal role in claim defensibility. Furthermore, the shift increases HMRC’s ability to apply more consistent oversight across claimants, reinforcing the need for precision, transparency, and high-quality supporting documentation.
At Westlock Partners, we work closely with businesses to navigate these complexities, ensuring claims are technically accurate, fully compliant, and aligned with evolving HMRC expectations.