R&D tax relief for SMEs

Research and Development (R&D) tax relief is currently available to small and medium-sized enterprises (SMEs), which provides an enhanced tax deduction for the costs of qualifying R&D projects. This can only be claimed if the business is liable for corporation tax.

Particularly for start-ups who are looking to reduce their tax or for funding support, can R&D tax relief help maintain costs while also securing a competitive advantage?

What qualifies as an R&D project?

A business can apply for R&D tax relief if they’re undertaking an R&D project – this can be a new product or change or improve an existing process.

According to HMRC, R&D projects are summarised as ‘projects which seek to achieve an advance in overall knowledge or capability in a field of science or technology through the resolution of scientific or technological uncertainty – and not simply an advance in its own state of knowledge or capability’.

Relief available

Small or medium-sized enterprise scheme

The current tax relief on allowable R&D costs is 230% – this means for every £100 of qualifying costs, your company can lower its profits subject to corporation tax by an extra £130 in addition to the £100 spent.

Research and Development Expenditure Credit scheme

If any of the expenditure on R&D has been met by funding (such as a grant) then relief may be available at 11% under the Research and Development Expenditure Credit scheme. This replaced the large company scheme in April 2016.

Benefits 

SMEs can claim the tax relief if they have:

  • less than 500 employees
  • an annual turnover under €100 million
  • a balance sheet under €86 million.

If your business falls into this category, the amount you can claim back as tax credit (if you choose to surrender your losses to HMRC in return for a cash credit) can be as much as 33.35p for every £1 spent on qualifying R&D. 

Making a claim

If you decide to make a claim for R&D tax relief, it should be included on your company’s tax return.

The deadline for submitting a claim is 2 years from the end of the accounting period in which costs were included.

For more guidance on claiming R&D tax relief visit the HMRC website.

Talk to us about the tax relief available to your business.