How the new merged R&D scheme can lead to late payment charges
12th September 2025
Posted in Articles, Corporation Tax by Tom Stockton
By now, most companies are aware of the new merged R&D scheme (for more information on this see our previous tax bite – The new ‘merged’ R&D scheme).
However, most companies have not considered how these new rules impact their corporation tax (‘CT’) payment deadlines. As a result, we are frequently being contacted by companies which have inadvertently fallen within the quarterly instalment payments (‘QIPS’) regime and have incurred large late payment interest charges as a result.
Whilst previously the SME scheme had the effect of reducing taxable profits by providing an enhanced 86% R&D deduction, the new scheme actually increases taxable profits by providing an ‘above the line’ tax credit that is then used to offset the CT liability. Given that the QIPS thresholds assess taxable profits, this change potentially pushes more companies into QIPS – which admittedly does seem strange.
As the first QIPS payment date is usually 15 months before the normal corporation tax due date (9m+1d after the year-end), many companies are not realising that they should have paid QIPS and are being stung with large late payment interest charges (currently 6.5%).
Example
The table below shows the position for a company with an accounting profit of £3m and R&D expenditure of £2m under the old SME regime and under the new merged scheme.
| SME scheme | Merged scheme | |
| £ | £ | |
| Year ended | 31 March 2024 | 31 March 2025 |
| Taxable profits prior to R&D claim | 3,000,000 | 3,000,000 |
| R&D 86% enhanced deduction | (1,720,000) | – |
| R&D 20% credit (RDEC) | – | 400,000 |
| Taxable profit/(loss) | 1,280,000 | 3,400,000 |
| CT liability @ 25% | 320,000 | 850,000 |
| R&D credit (merged scheme) | – | (400,000) |
| Tax payable | 320,000 | 450,000 |
Due to the R&D claim, this company was not previously within the QIPS regime and paid its tax 9m+1d after its year end. However, as the QIPS threshold assesses taxable profits, the company will fall within the regime under the new merged R&D scheme. If the company does not realise this and only pays its liability 9m+1d after the YE, we calculate that HMRC would charge £46k of late payment interest.
Perhaps interestingly, as the R&D credit is not considered ‘paid’ until the R&D claim is made, companies are supposed to make QIPS payments based on the CT liability before the R&D credit (£850k in the above example) and later claim back the overpayment (the £46k above was calculated on this basis). This will have cash flow implications going forwards, but it also means that any late payment interest is also calculated on this higher amount (and not the actual tax payable of £450k). As a result, the effects of getting this wrong can be significant.
Forbes Dawson view
Sharp readers may have spotted that in the example above the company would not typically fall within QIPS in the first period that it becomes large because of a one year grace period that exists. However, care needs to be taken when relying on this first-year exemption as there are many scenarios where it does not apply. Typically, this includes the following scenarios:
1) Smaller companies with several associated companies meaning the QIPS thresholds are lower (therefore the immediate QIP limit can be much lower than £10m), and
2) Companies with large R&D claims which previously suppressed their taxable profits below £10m.
Companies need to be made aware of this issue as soon as possible as it can significantly impact their cashflows. In some cases it may be possible to manage the situation by amending loss claims in a prior period. The availability of most tax planning in this area will depend on spotting the issue early.
