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 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:
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.