The Merged R&D Scheme Explained

The merged scheme combines key features of the SME and Research & Development Expenditure Credit (RDEC) structures into a single framework intended to reduce distortion and tighten compliance. For funded companies, the important consequence is not simplification for its own sake. It is the removal of the old subsidised expenditure barrier.

That matters because many Innovate UK recipients were historically told their claim potential was limited purely because the project attracted grant support.

Subsidised expenditure restrictions were removed, and the 20% taxable credit now sits within the merged framework. That means grant-funded businesses can look at the whole qualifying spend profile rather than treating the grant as a shut door.

It also means claim preparation needs to be more precise. Opportunity has increased, but so has the need for robust technical and cost mapping.

Both profitable and loss-making companies can benefit, but the value profile differs after tax and depending on company circumstances. For that reason, broad rules of thumb are less useful than a tailored review of how the project costs sit in the business.

What matters first is the quality of the qualifying spend analysis rather than an oversimplified headline on profit status.

If your project involved genuine technical uncertainty, you may now claim Research & Development Expenditure Credit (RDEC) on all qualifying spend around that work. That can include your own R&D staff, subcontractors, software, consumables, and further innovation activity linked to the technical programme.

The right question is no longer whether the grant stops a claim. It is how much of the wider project activity is properly qualifying.