SME R&D Tax Credit Scheme
What is the SME R&D tax relief scheme?
The SME R&D tax credit scheme was introduced to encourage innovation in science and technology.
Companies with significant research and development expenditure can make a total deduction of 186% of their qualifying costs from their yearly profit and can claim a payable tax credit of up to 10% of surrenderable losses if the business has claimed relief.
Why claim SME R&D tax credits?
R&D tax credits are a vital benefit in providing a cash injection to companies which successfully claim for their research and development activities.
Smaller businesses are likely to especially welcome a financial boost and those who apply through the SME scheme can receive an enhanced rate compared to those on the RDEC scheme.
The tax relief received can be invested back into the business, potentially to fund further R&D innovation or perhaps to enhance a company’s premises with new machinery or equipment.
You can gain an indication of how much you would be eligible to receive by using our R&D tax credit calculator.
How is the R&D SME scheme changing in 2024?
As of 1 April 2024, the SME and RDEC schemes will be merged for accounting periods beginning on that date.
This will have a significant impact on companies claiming R&D tax credits.
Key changes include:
- One single rate and set of rules: 20% post-tax rate between 14.7%-16.2%
- Qualifying rules for subcontracted and subsidised R&D (previously RDEC exclusive)
- Threshold for R&D intensity (loss-making SMEs with qualifying R&D from total expenditure) lowered from 40% to 30%
- Restrictions on overseas R&D expenditure
Introducing the SME Intensive Scheme
For accounting periods that begin on or after 1 April 2024, the SME and RDEC schemes are merged, creating one rate – 20% – and a singular set of rules. However, loss-making SMEs that are R&D intensive – which means more than 30% of their total expenditure is incurred on research and development – will receive an enhanced 27% R&D tax credit.
The figure of 30% has been reduced from the 40% of total expenditure incurred on research and development which was the threshold for a company to be classed as R&D intensive before April 2024.
Is my business eligible for the SME R&D tax relief scheme
SMEs that are eligible to claim R&D tax credits will have less than 500 employees, as well as a turnover of under €100million (£85million) or a balance sheet total under €86million (£73.59million).
Linked and partner enterprises will be included in this total and can affect your SME status. Calculating your R&D tax credits will be subject to the voting rights your business holds in another enterprise, in addition to the voting rights of your company which are held by other parties.
To qualify for the SME scheme, companies must employ no more than 500 members of staff. They must also have a turnover of under €100m (£85million) or gross assets of under €86m (£73.59million).
What can be claimed as R&D tax credits for SMEs?
Under the R&D SME scheme, small businesses can claim Corporation Tax relief on projects which meet the government’s definition of research and development.
Projects which satisfy the following criteria could be eligible for SME R&D tax credit:
- Advancements in the field were achieved
- Scientific or technological uncertainty was present
- Your business tried to overcome uncertainty
- Your company demonstrated that a professional in the field could not identify a solution
How do I claim SME R&D tax credits?
Small and medium-sized businesses can claim SME R&D tax credit by submitting a Company Tax Return to GOV.UK. Businesses can claim tax relief for up to two years after the end of an accounting period that the research and development expenditure relates to.
Whilst this can be a painstaking task, randd employs a team of specialist consultants capable of enhancing your claim and streamlining the process.
What can’t be claimed as SME R&D tax credit?
Although R&D tax credits cover many activities – some of which business leaders are unaware of without the advice of an expert – there are some limitations.
R&D tax relief is not granted for:
- Cost of land
- Capital expenditure
- Production and distribution of goods and services
- Payments for the use and creation of patents and trademarks
R&D Tax Credit Claim Template for SMEs
Several factors will be required by HMRC when considering an SME R&D tax credit claim. These include:
- Company name and number
- Number of employees
- Value of the claim supported by accounts for the relevant period
- Project details and summary of qualifying costs
- The field, advancement and uncertainties that were overcome
Who is eligible for advance assurance?
If a business is applying for tax relief under the R&D tax credit SME scheme for the first time, the company may qualify for advance assurance — a voluntary scheme that can be used as a guarantee for an R&D claim.
You can apply for advance assurance if you are an SME and have:
- Turnover of under £2million
- Less than 50 employees
- Not previously claimed SME R&D tax credit relief
How randd can help
Unlike most accountancy practices, at randd UK you will have access to a specialist team to process your SME R&D tax credit claim. Their role is to undertake the considerable research needed to ensure all boxes are ticked in the mission to maximise the amount of tax relief you receive.
We have the knowledge and expertise, built up over more than 15 years in this industry, to identify and include every R&D activity that qualifies for inclusion within a claim. Hundreds of millions of pounds have been claimed back as a result of our simplified, efficient procedures.
With input from your business, we will compile a detailed technical report. That is the all-important document which explains the SME R&D tax credit-compliant activities undertaken by your company, the scientific or technical challenges the R&D addressed and how existing legislation was adhered to.
We have an unparalleled claim success rate as well as a proven track record of recouping up to NINE times more R&D tax relief than an accountant, alternative agent or a self-submission claim would. An indicative figure for how much your claim could be worth can be obtained when you use our R&D calculator.
To enquire about how randd can help you with your SME R&D tax credit claim, call 01332 409 711 or email [email protected]
R&D SME Scheme FAQs
Companies classed as a loss-making SME may qualify for an enhanced R&D intensive rate if their qualifying R&D expenditure covers at least 40% of their total spend. As of 1 April 2024, the rate has been lowered from 40% to 30%.
Loss-making SMEs with qualifying R&D from total expenditure may receive an enhanced rate. For R&D activities conducted as of 1 April 2024, the rate has been lowered from 40% to 30%. This provides more opportunities for smaller companies to receive R&D tax credits than ever before.
SME R&D tax relief offers smaller companies the chance to receive a cash injection. R&D intensity considerations for SME companies may result in an enhanced rate.
The amount of payable R&D tax credit an SME can receive is capped at £20,000 plus 300% of its total Pay as you Earn (PAYE) and National Insurance Contributions (NIC) liability for the period.
There are, however, exemptions.
You can claim on R&D activities for up to two years based on the end of your business’ accounting periods that your R&D expenditure relates to.
Any recent activities can be claimed once your current accounting period ends.
If you are not fully conversant about what you can claim for, check out the randd uk eligibility checker.
HMRC does not specify which pieces of evidence are required to support an R&D tax credit claim. Seek expert help.
Claims can be made within two years of completing a qualifying project and are typically reviewed and paid out within 28 days.