The Merged RDEC Scheme

Key facts

The merged RDEC scheme applies to accounting periods beginning on or after 1 April 2024.
The credit rate is 20% of qualifying R&D expenditure, recognised above the line in the profit and loss account.
After Corporation Tax at 25%, the effective net benefit is approximately 15% for profitable companies.
Loss-making companies can receive the credit as a cash payment from HMRC (less a notional tax charge).
The old SME R&D relief (additional 86% deduction for non-intensive SMEs) no longer applies for periods from April 2024.

Overview of the Merged RDEC

The merged Research and Development Expenditure Credit (RDEC) scheme is the UK’s single, unified R&D tax relief for all companies. It was announced in the Autumn Statement 2023 and took effect for accounting periods beginning on or after 1 April 2024.^[4]

Before April 2024, companies could claim under two different regimes:

Old Scheme	Who Used It	Mechanism
SME R&D relief	Small & medium companies	Additional 86% deduction from taxable profits (previously 130%)
Large company RDEC	Large companies & some SMEs with grant-funded or subcontracted R&D	13% above-the-line credit (later 20%)

The merged scheme replaces both with a single 20% above-the-line expenditure credit available to all companies, regardless of size.^[1]

How the Merged RDEC Works

Under the merged RDEC, the process is:

Calculate qualifying R&D expenditure for the accounting period (staff costs, subcontractors, materials, software, utilities).
Apply the 20% credit rate to get the gross RDEC amount.
The credit is recognised in your profit and loss account as income (above the line).
The credit is then subject to Corporation Tax at 25%.
The resulting net benefit is approximately 15% of qualifying expenditure.

Example: A company with £100,000 of qualifying R&D expenditure receives a 20% credit of £20,000. After Corporation Tax at 25% (£5,000), the net cash benefit is £15,000 — equivalent to 15p per £1 spent on R&D.

Detailed Credit Calculation

Step	Description	Amount
1	Qualifying R&D expenditure	£200,000
2	RDEC at 20%	£40,000
3	Less: Corporation Tax at 25%	−£10,000
4	Net benefit	£30,000

Loss-Making Companies

If your company is loss-making and has no Corporation Tax liability to offset the credit against, the merged RDEC can be paid out as cash by HMRC. The steps are:^[3]

First, offset the credit against any CT liability for the period.
Then, offset against any other outstanding tax debts (PAYE, VAT, etc.).
Any remaining credit is paid out as a taxable cash payment.

The payable credit amount is the RDEC less a notional tax charge. For a company with no taxable profits, this effectively means the payable amount is the RDEC amount minus the notional tax — approximately 15% of qualifying expenditure.

Tip: Loss-making R&D intensive SMEs may be better off claiming under the ERIS scheme, which offers a more generous payable credit of 14.5% on an enhanced deduction of 86%. Check whether your company qualifies as R&D intensive before deciding which scheme to use.

Why “Above the Line” Matters

Unlike the old SME scheme (which was a deduction against taxable profits), the merged RDEC is an “above the line” credit. This means it appears as income in your profit and loss account, typically within operating profit.^[2]

Benefits of the above-the-line treatment include:

Visible in your accounts — investors, lenders, and stakeholders can see the benefit clearly
Improves reported profit — useful when applying for finance or tendering for contracts
Consistent treatment — the same approach regardless of whether the company is profitable or loss-making

Transitional Rules

If your company’s accounting period straddles 1 April 2024, you may need to consider transitional provisions:^[1]

Expenditure incurred before 1 April 2024 may still be eligible under the old SME or RDEC rules
Expenditure incurred on or after 1 April 2024 falls under the merged RDEC
The accounting period may need to be split for calculation purposes

For most companies with a standard April–March accounting period, the merged scheme applies in full from the 2024/25 period onwards.

Who Cannot Use the Merged RDEC?

The merged RDEC is available to all companies carrying out qualifying R&D. However, loss-making SMEs that are “R&D intensive” (R&D expenditure is 30% or more of total expenditure) may instead choose to claim under the Enhanced R&D Intensive Support (ERIS) scheme, which is more generous for such companies.^[1]

Frequently Asked Questions

What happened to the old SME R&D relief?

The old SME scheme, which gave a 130% additional deduction on qualifying R&D costs, was effectively replaced. From April 2024, all companies (both SMEs and large companies) use the merged RDEC scheme at 20%. The only exception is R&D intensive loss-making SMEs, which may qualify for the separate ERIS scheme instead.

What is the effective benefit of the merged RDEC?

For a profitable company paying Corporation Tax at 25%, the 20% RDEC credit is itself taxable. The net cash benefit is approximately 15p for every £1 of qualifying R&D expenditure (20% credit minus 25% CT on that credit). For loss-making companies, the payable credit calculation is slightly different.

Can I still claim under the old SME scheme?

Only if your accounting period straddles 1 April 2024. In that case, you may need to split the period and claim under the old rules for the pre-April 2024 portion and the merged RDEC for the post-April 2024 portion. For accounting periods beginning on or after 1 April 2024, the merged RDEC applies.

How does the merged RDEC appear in my accounts?

The RDEC is an “above the line” credit, meaning it is recognised in your profit and loss account (typically as other operating income or offset against cost of sales). This improves your reported operating profit, which can be beneficial when dealing with banks, investors, and other stakeholders.

Sources

Corporation Tax: Research and Development (R&D) relief — GOV.UK
Research and Development Expenditure Credit (RDEC) — GOV.UK
CIRD89700 – R&D tax relief: merged scheme RDEC — HMRC
Autumn Statement 2023: R&D tax reliefs reform — GOV.UK