The research and development (R&D) tax credit scheme for SMEs offers a benefit of up to 21.5% from 1 April 2023 – the equivalent of up to 21p 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, or an R&D intensive SME.
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. From1 April 2023, an R&D tax credit claim then allows a further 86% of this eligible R&D expenditure to be deducted when calculating the profits of your company’s trade. Prior to 1 April 2023 a further deduction of 130% of R&D expenditure is allowable when calculating the profits of your company’s trade. Your exact return will depend on your qualifying R&D activities and costs.
R&D tax credit rates for a loss-making SME
Prior to 1 April 2023, the SME R&D tax credit scheme also allows loss-making companies to claim a payable credit at a rate of 14.5%. A loss-making company with an estimated R&D spend of £500,000 could claim up to £166,750 as a tax credit.
From 1 April 2023, the SME R&D tax credit scheme still allows loss-making companies to claim a payable credit but at a slightly lower rate of 10%. A loss-making company with an estimated R&D spend of £500,000 could claim up to £93,000 as a tax credit.
Where a company qualifies for the new R&D intensive rate – defined as companies who spend at least 40% (lowered to 30% for accounting periods beginning on or after 1 April 2024)of their total expenditure on qualifying R&D, then it can continue to claim a credit at the pre 1 April 2023 rate of 14.5%.
As noted above, for accounting periods starting on or after 1 April 2024, unless a business meets the R&D intensive threshold, they will need to claim under the single scheme. The R&D intensive threshold is reduced to 30% for these periods.
| SME R&D tax incentive | Merged scheme | Enhanced R&D intensive support | ||
|---|---|---|---|---|
| Company type | Before 1 April 2023 | After 1 April 2023 | From 1 April 2024 | From 1 April 2024 |
| Loss-making SME | Up to 33.35% | Up to 18.6% | 16.2% | |
| Profit-making SME | Up to 24.7% | Up to 21.5% | Up to 16.2% | |
| R&D intensive SME | Up to 27% | Up to 27% | ||
| Large company | Up to 16.2% | |||
How much can I claim?
Although your exact return will depend on the qualifying R&D activities and costs that our expert chartered tax advisers identify, you can estimate the value of your R&D tax credit by answering just a few quick questions.