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What are the R&D tax credit rates for the SME scheme?

by Sunil Bajaj

The research and development (R&D) tax credit scheme for SMEs offers a benefit of up to 33% – the equivalent of up to 33p for every £1 spent on qualifying expenditure. The exact rate of relief you receive will depend on your Corporation Tax position, and whether you are profit- or loss-making.

SME R&D tax credits offer an enhanced deduction for your R&D expenditure. Typical eligible R&D costs include: staff and subcontractor costs, materials and consumables including heat, light and power as well as some types of software.

R&D tax credit rates for a profitable SME

Your R&D expenditure already typically attracts tax relief as part of the normal operational costs of your trade. Your R&D tax credit claim then allows a further 130% of this eligible R&D expenditure to be deducted when calculating the profits of your company’s trade.

Your exact return will depend on your qualifying R&D activities and costs. If, for example, your estimated spend on R&D per year is £500,000, we estimate you could receive up to £123,500 as a tax refund or reduced tax liability. You can see how this is calculated here:

R&D tax credits - calculation for profit making SMEs.png

R&D tax credit rates for a loss-making SME

The SME R&D tax credit scheme also allows loss-making companies to claim a payable credit. A loss-making company with an estimated R&D spend of £500,000 could claim up to £166,750 as a tax credit. You can see how this is calculated here:

Example calculation of SME R&D tax credits loss-making

Estimate your R&D tax credit

Answer three simple questions to see approximately what R&D tax relief could be worth to your business based on the R&D tax credit rates as of 1 January 2018.

Although it appears, at first glance, that a loss-making SME receives a larger benefit, this is not the case. If you are profit-making, you will have already reduced your taxable profits by the R&D expenditure under normal Corporation Tax rules. The R&D tax credit is in addition to this initial reduction.

Your exact return will depend on your R&D qualifying costs and activities that our expert team identify. Ensuring you have captured the full extent of your R&D will deliver maximum value for your business and give you peace of mind nothing has been missed. Speak to our team of chartered tax advisers and sector specialists today for further advice.

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This article was last updated on 11 October 2019.

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