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

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The research and development (R&D) tax credit scheme for SMEs offers a benefit of up to 27% – the equivalent of up to 27p 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. Your 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. 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. 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 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 £93,000 as a tax credit. Unless the company qualifies for the new R&D intensive rate – defined as companies who spend at least 40% of their total expenditure on qualifying R&D can continue to claim a credit of 14.5%.

For accounting periods starting on or after 1 April 2024, unless a business meets the R&D intensive threshhold, they will need to claim under the single scheme. The R&D intensive threshold is reduced to 30% for these periods.

Your business

Company size

  • Loss-making SME >

  • Loss-making R&D intensive SME** >

  • Profit-making SME >

  • Large company >

SME R&D tax credit incentive

Before 1 April 2023

Enhanced deduction

230%

230%

.

230%

N/A

Before 1 April 2023

Payable credit

14.5%

14.5%

.

14.5%

N/A

Before 1 April 2023

Effective rate*

Up to 33.35%

Up to 33.35%

.

Up to 24.7%

N/A

From 1 April 2023

Enhanced deduction

186%

186%

.

186%

N/A

From 1 April 2023

Payable credit

10%

14.5%

.

N/A

N/A

From 1 April 2024***

Effective rate*

Up to 18.6%

Up to 27%

.

Up to 21.5%

N/A

From 1 April 2024***

Payable credit

N/A

14.5%

.

N/A

N/A

From 1 April 2024***

Effective rate*

N/A

Up to 27%

.

N/A

N/A

*Effective rate – the rate at which a company will benefit from the R&D incentive when taking into account tax savings from R&D enhancements, rates of credit available and tax payable. For example, a company spending £1m on R&D and claiming RDEC, receives a gross credit of £200k. If tax is applied to this credit at 25%, the company will actually receive a benefit of £150k, equating to an effective rate of 15% of its R&D expenditure.

**For accounting periods starting on or after 1 April 2024, the R&D intensive threshold falls from 40% to 30%.

***Accounting periods beginning 1 April 2024.

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.

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.

Have a question for our team?

It can be complicated to submit an R&D tax credit claim to HMRC’s exacting standards.

Get in touch with our team of chartered tax advisers, chartered accountants, lawyers, sector specialists, former HMRC inspectors and quality assurance experts to access expert guidance for your claims.

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