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Still claiming R&D tax relief under the SME or RDEC scheme? These rules apply to accounting periods starting before 1 April 2024. Learn the rates, eligibility, and key differences.
The SME and RDEC schemes no longer apply to new accounting periods. For any period beginning on or after 1 April 2024, the Merged Scheme applies instead.
But if you're claiming for an accounting period that began before that date, the SME and RDEC rules still govern your claim. Here’s the rules that apply.
The SME Scheme is the more generous of the two for most companies, with higher rates of relief and a broader set of eligible costs. In 2022/23, nearly 90% of R&D tax claims by number were made through the SME Scheme.
Unlike the RDEC Scheme, the SME Scheme reduces taxable profits or generates a payable tax credit for loss-making companies, rather than functioning as a separate expenditure credit.
To use the SME Scheme, your company must meet all of the following:
If your company exceeds either of the financial thresholds (regardless of headcount), you must use the RDEC Scheme.
The rates changed for expenditure incurred on or after 1 April 2023. If your accounting period straddles that date, apply each set of rates to the relevant portion.
Expenditure up to 31 March 2023: additional deduction of 130% (total deduction of 230%); payable tax credit rate of 14.5%. The real-world benefit is 24.7% for profit-making companies, 33.35% for loss-making companies.
Expenditure from 1 April 2023: additional deduction of 86% (total deduction of 186%); payable tax credit rate of 10%. The real-world benefit is 21.5% for profit-making companies, 18.6% for loss-making companies.
Loss-making SMEs with a high R&D spend relative to total costs may also qualify for the Enhanced R&D Intensive Support (ERIS) Scheme for expenditure incurred from 1 April 2023, which offers better rates than the standard SME Scheme.
The SME Scheme covers: staff costs, contractors, externally provided workers (EPWs), consumable items, software licences, cloud computing costs, data licences, and clinical trial volunteer payments.
SMEs with subsidised projects, including work contracted out by another company, or projects funded by state aid grants, cannot use the SME Scheme for those projects. In some cases, these costs can be claimed through the RDEC Scheme instead.
The ERIS scheme is also available to SMEs, under certain circumstances. A loss-making SME whose R&D costs make up 30% or more of their total expenditure for the period can surrender their losses at a higher rate of 14.5%, giving a real world benefit of 26.97% (compared to the usual 18.6%).
You can find more information about the ERIS scheme in this guide: Merged vs ERIS: Which R&D Tax Scheme Should I Use?
The RDEC Scheme was designed primarily for companies that fall outside the SME thresholds, taking over from the defunct Large Company scheme. It functions as an above-the-line expenditure credit, meaning the benefit flows through taxable income rather than as a deduction. The credit rate increased for expenditure from 1 April 2023.
The RDEC scheme is the basis for the new Merged Scheme that applies to all recent accounting periods.
Expenditure up to 31 March 2023: headline rate is 13%; real-world net benefit is 10.5%.
Expenditure from 1 April 2023: headline rate is 20%; real-world net benefit is 16.2%.
Large companies (those exceeding the SME thresholds) claim through RDEC. Two categories of SME also use it:
The main restriction in the RDEC Scheme is subcontracting: payments to third-party subcontractors generally cannot be included, unless the subcontractor is a qualifying body (such as a charity, university, or health service body), an individual, or a partnership of individuals.
In most cases, the answer is clear: SMEs use the SME Scheme and large companies use RDEC.
Some SMEs will split their claim across both schemes. For example, if a company has two projects and one is grant-funded, the grant-funded project goes through RDEC while the unfunded project uses the SME Scheme.
Since August 2023, all R&D claims require an Additional Information Form (AIF) to be submitted before the Corporate Tax Return. First-time claimants and companies that haven't claimed in the last three years also need to submit an Advance Notification Form within six months of the end of the accounting period. Missing this deadline invalidates the claim entirely.
Myriad's Advance Notification Form Checker confirms whether this requirement applies to your company.
From 1 April 2024, the Merged Scheme replaces both the SME and RDEC schemes for all new accounting periods. It has a single rate across all companies and different rules around eligible costs and subcontracting. If you're planning ahead for future claims, reviewing the Merged Scheme requirements now is worthwhile.
If you're unsure which scheme your claim should go through, or would like a free eligibility review, get in touch with the team at Myriad.
December year-end companies have until 30 June 2026 to submit the R&D Advance Notification Form. First-time and lapsed claimants must act now.
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Please contact us to discuss how working with Myriad can maximise and secure R&D funding opportunities for your business.
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