SME R&D Tax Credit Explained
The SME Tax Credit scheme applied to accounting periods beginning before 1 April 2024. Companies can still submit claims under the SME scheme for these periods, subject to the standard two-year claim deadline. For accounting periods beginning on or after 1 April 2024, most businesses must claim under the merged R&D scheme.
What is the SME Scheme?
The SME R&D Tax Credit scheme was introduced to encourage innovation in the UK for small and medium-sized businesses and applied to accounting periods starting before 1 April 2024.
Under the SME R&D Tax Credit scheme, companies could claim up to 186% of their qualifying R&D expenditure, resulting in effective benefits of up to 27p per £1 for loss-making SMEs and up to 21.5p per £1 for profit-making SMEs.
NOTE: Claims under the SME scheme can only be made for accounting periods beginning before 1 April 2024.
Why review your SME R&D Tax Credit scheme eligibility?
If your business carried out qualifying R&D before 1 April 2024, you may still be able to submit a claim under the SME scheme.
R&D Tax Credits can provide a valuable financial benefit, helping smaller businesses support innovation, improve processes, and invest in further development.
Any relief received can be reinvested into the business, whether to fund additional R&D activity or to support growth through new equipment or infrastructure.
You can gain an indication of how much you may be eligible to receive by using our R&D Tax Credit Calculator.
What replaced the SME scheme?
From 1 April 2024, the SME and RDEC schemes were merged into the merged R&D Tax Credits scheme for accounting periods beginning on or after that date.
This introduced a single R&D Tax Relief framework for most companies, changing how relief is calculated and how claims are submitted.
The SME scheme still applies to accounting periods starting before 1 April 2024, and claims can generally be backdated for up to two years.
Key features of the current system include:
- A single above-the-line credit rate of 20%, with a net benefit typically around 15% depending on the company’s position
- Updated rules for subcontracted and subsidised R&D expenditure
- A reduced R&D intensity threshold of 30% for loss-making, R&D-intensive SMEs
- Restrictions on overseas R&D expenditure
Enhanced support is available for R&D-intensive SMEs through the Enhanced R&D Intensive Support (ERIS) scheme for qualifying loss-making SMEs. Loss-making companies that spend at least 30% of their total expenditure on R&D may qualify for an enhanced payable credit, with an effective benefit of up to around 27%.
If your accounting period began on or after 1 April 2024, you will need to claim under the merged R&D scheme rather than the SME scheme.
Find out the value of your claim
Any business in any sector can qualify. Discover how much you could be owed today!
Was my business eligible for the SME scheme?
SMEs that are eligible to claim R&D Tax Credits will have less than 500 employees, as well as a turnover of under £85million or a balance sheet total under £74million.
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.
What can be claimed as R&D Tax Credits for SMEs?
Under the 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
Discover what qualifies for R&D tax credits here.
How do I claim the SME Scheme?
Claims under the SME scheme can only be made for eligible historic accounting periods beginning before 1 April 2024.
Our specialist team are available and ready to submit your claim, undertaking the considerable research needed to ensure all boxes are ticked in the mission to optimise the amount of tax relief you receive.
We have the knowledge and expertise, built up over nearly 20 years in this industry, to identify and include every R&D activity that qualifies for inclusion within a claim. The simplified, efficient procedures we apply are proven to work.
With input from your business, we will compile a detailed technical report. This is the vital document which explains the qualifying 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 due to the vast experience and knowhow brought to the process by our senior-level team. If you would like an estimation of how much your claim could be worth, it can be obtained by using our R&D calculator.
R&D SME Scheme FAQs
What is the difference between the SME R&D scheme and Enhanced R&D Intensive Support (ERIS)?
The difference relates to the level of support available to loss-making SMEs. The SME R&D scheme applied to accounting periods beginning before 1 April 2024, whereas qualifying R&D-intensive companies may now claim under Enhanced R&D Intensive Support (ERIS). ERIS offers a higher payable credit rate of 14.5%, resulting in a greater cash benefit. To qualify, eligible R&D expenditure must account for at least 30% of total relevant expenditure.
What are the benefits of claiming tax credits under the R&D SME scheme?
SME R&D Tax Relief offered smaller companies the opportunity to reduce Corporation Tax liabilities or receive a cash payment, helping to support innovation and business growth. For accounting periods beginning on or after 1 April 2024, qualifying R&D-intensive SMEs may be eligible for enhanced support through ERIS.
Is there a cap on the amount of SME R&D Tax Credit my business can claim?
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.
Can my business claim SME R&D tax credit retrospectively?
SME R&D tax credit claims can generally be submitted up to two years after the end of the relevant accounting period.
Claims can generally only be submitted once the relevant accounting period has ended.
If you are not fully conversant about what you can claim for, check out the randd uk eligibility checker.
What evidence is needed to make a claim under the R&D SME scheme?
HMRC does not specify which pieces of evidence are required to support an R&D Tax Credit claim. However, businesses should retain records that demonstrate the qualifying activities undertaken, the uncertainties addressed and the expenditure incurred. Seek expert help.
How long does it take to receive SME R&D tax credit following a successful claim?
HMRC aims to process 95% of all claims within 28 days, but this is dependent on the nature of your claim and even the time of year in which your claim is submitted.
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