What is the merged R&D scheme?
Answered 17 March 2026
Here is a comprehensive explanation of the merged R&D scheme:
HMRC Guidance / Practice
Background and Introduction
The merged scheme (formally known as the new RDEC — R&D Expenditure Credit) was introduced by the Finance Act 2024, which abolished the old RDEC scheme and replaced it with the new merged scheme RDEC. It applies to accounting periods beginning on or after 1 April 2024.
The scheme is described as "new RDEC" and is "a new scheme entirely" — it is not simply a continuation of the old RDEC. The legislation is contained in CTA09, Chapter 1A.
Key Features
The new RDEC has the following key features:
- Single set of rules for all claimants, regardless of company size (i.e., both large companies and SMEs use the same scheme).
- It remains a taxable credit (deemed trading income), calculated as a percentage of qualifying R&D expenditure. It is not strictly a tax relief.
- The calculation and payment steps are broadly similar to the old RDEC, but with two notable improvements:
- A lower rate of notional tax restriction at Step 2 is available to small profit-makers and loss-makers.
- A more generous PAYE cap applies at Step 3.
- Expenditure on contributions for independent R&D can no longer be claimed.
- Claimants can generally claim for R&D contracted out by them, but cannot claim for R&D contracted out to them (subject to transitional provisions).
- The approach to defining "contracted out" R&D is different from both the old SME scheme and old RDEC.
- Contractor and externally provided worker (EPW) payments are subject to overseas restrictions.
- Otherwise, the categories of qualifying expenditure remain substantially unmodified from the old RDEC.
- HMRC will generally only pay any payable RDEC (Step 7) direct to the claimant company (nominations and assignments restrictions under CTA09/S1142C & D).
Credit Rate
The new RDEC rate under CTA09/S1042G is:
| Accounting periods beginning on or after | Non-ring fence trades | Ring fence trades |
|---|---|---|
| 1 April 2024 | 20% | 49% |
These rates apply regardless of when the expenditure was originally incurred.
PAYE Cap
The PAYE cap for the merged scheme is £20,000 plus 300% of the company's relevant PAYE and NIC liabilities for payment periods within the accounting period (CTA09/S1112B(2)). Any excess over the cap is carried forward and treated as an amount of RDEC for the next accounting period.
Relationship with ERIS
The merged scheme co-exists with Enhanced R&D Intensive Support (ERIS), which is a separate scheme for loss-making R&D-intensive SMEs. Companies may be eligible to claim under both schemes, but cannot claim under more than one scheme for the same qualifying expenditure. Where a company cannot claim ERIS (e.g., due to a de minimis State aid limit), it may be able to claim RDEC under the merged scheme for that expenditure instead.
Claim Notification Requirement
Claims to the new merged scheme RDEC (Chapter 1A) for accounting periods beginning on or after 1 April 2024 are subject to a claim notification requirement under CTA09/S1042C, unless the company has previously made an R&D claim within the preceding three years or meets another qualifying condition.
Citation sources
CTA09/S1042C and CTA09/S1045A prevent the making of a claim to the new merged scheme RDEC (“new RDEC”) and enhanced R&D intensive support (“ERIS”) respectively after the end of the claim notification period (see below), unless at least one of the following applies: the company has made an R&D claim during the period of three years ending with the last day of the claim notification period (ignoring any R&D claim for an accounting period beginning before 1 April 2023 which is made in an amendment
The amount of the PAYE cap for claims under both the merged scheme RDEC (“new RDEC”) and enhanced R&D intensive support (ERIS) is £20,000 plus 300% of the company’s relevant PAYE and National Insurance Contributions (NIC) liabilities (CTA09/S1112B(2)) for payment periods within the accounting period. If the accounting period is of less than 12 months duration, the amount of £20,000 is proportionately reduced (CTA09/S1112B(3)). Under new RDEC, the PAYE cap (where applying) limits the amount of pa
There is a single set of rules for claimants of any size The new RDEC remains a taxable credit (deemed trading income) calculated as a percentage of qualifying R&D expenditure The calculation and the payment steps are broadly similar to the old RDEC scheme, however: a lower rate of notional tax restriction at step 2 of the payment steps is available to small profit-makers and to loss-makers (see CIRD112100) a more generous PAYE cap applies at step 3 (see CIRD140000) Expenditure on contributions
If there is any expenditure you cannot claim ERIS for, because it would take you over the de minimis limit for your sector, you may be able to claim RDEC for that expenditure under the merged scheme, provided you satisfy the rules (see CIRD110000).
The Finance Act 2024 modified Chapter 2 of Part 13 of the Corporation Tax Act 2009 (CTA09) to make provision – known as enhanced R&D intensive support (ERIS) - for loss-making R&D-intensive SMEs with effect for accounting periods beginning on or after1 April 2024. The commencement date of 1 April 2024 was defined in Treasury regulations issued on 4 March 2024 (SI2024/286). Retrospective provision (enhanced support for R&D intensive SMEs), permitting SMEsto claim the higher tax credit rate of 14.
The new merged scheme RDEC only applies to accounting periods beginning on or after 1 April 2024. The new RDEC rates (CTA09/S1042G) are as follows: Accounting periods beginning on or after RDEC Rate Non ring fence trades Ring fence trades 1 April 2024 20% 49% These rates apply regardless of when expenditure claimed for in the accounting period was originally incurred.
New RDEC applies to accounting periods beginning on or after 1 April 2024. Qualifying Chapter 1A expenditure will generally be eligible for relief in the accounting period in which it receives a tax deduction, even if it was incurred in a previous accounting period before the introduction of new RDEC. Please note that expenditure must be qualifying Chapter 1A expenditure under CTA09/Chapter 1A as it has effect for the accounting period in which the claim is made, regardless of when the expenditu