For UK businesses, R&D tax credits provide an opportunity to reduce Corporation Tax, stimulate economic growth and reinvest into innovative scientific or technological projects. In recent years, the average R&D tax claim result has increased by 28%, emphasising the value of these schemes in supporting SMEs and larger UK companies.
Navigating the two main R&D schemes – the RDEC scheme and SME R&D tax credit – can be complex, particularly with recent changes in the latest HMRC guidelines. In this guide, we will break down:
- SME R&D scheme & RDEC meaning
- Eligibility criteria and benefits of SME R&D tax relief and RDEC tax credit
- Key differences between each scheme and its credits
- Updated HMRC guidelines for R&D tax relief
- How Randd streamline the RDEC & SME R&D tax claims process
| Did You Know? For over 15 years, Randd has helped UK businesses maximise their R&D tax relief claims. Our experts can help you unlock 9x or 12x more value for your tax claim than doing it alone. Try our FREE R&D tax calculator to discover how much you could claim back! |
SME R&D Tax Credit & RDEC Meaning
The UK government offers 2 primary forms of R&D tax relief schemes to encourage innovation in science and technology:
- SME R&D Tax Credit Scheme – Designed for small and medium-sized enterprises, this scheme rewards companies undertaking eligible R&D activities.
- Research and Development Expenditure Credit Scheme (RDEC) – Initially created for large businesses, though SMEs can access this route in specific situations.
SME R&D & RDEC Claim Criteria
| Eligibility Criteria | SME R&D Tax Credit | RDEC Scheme |
| Company Size | < 500 employees Turnover < £85 million Balance sheet total < £73.59 million |
> 500 employees Turnover > £85 million Balance sheet total > £73.59 million |
| Primary Eligibility | Small and Medium-Sized Enterprises meeting the above criteria | Large companies exceeding SME thresholds |
| R&D Qualifying Cost | Projects advancing science & technology or overcoming uncertainty (in-house R&D) | Large-scale company projects that advance science & technology |
| Relief Type | Enhanced deduction against profits (potential for payable credits) | Above-the-line credit (taxable income stream) |
While the initial R&D scheme the UK government released in 2000 was specifically designed for smaller companies, some SMEs may still qualify for the later RDEC scheme, launched in 2013.
Even with a turnover below the £85million large company threshold, an SME may be eligible for RDEC tax credit if:
- They have received government grant funding or notified State aid for the R&D project.
- They have been subcontracted or subsidised by a larger company to carry out the R&D project.
- The business has close connections to other companies (partner or linked enterprises), which, when aggregated, cause the overall group to exceed SME size thresholds.
| Did You Know?
At Randd, we have reclaimed over £250million in R&D tax credits for SMEs & larger companies, with an average claim rate of £50,000. Contact us today on 01332 409 711 or email [email protected] for expert advice & maximise your company’s potential! |
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RDEC Tax Credits vs. SME R&D Tax Relief
The Benefits & R&D Calculations
Both RDEC and SME R&D tax credit schemes help companies reduce their Corporation Tax bills (CT600) or receive payable cash credits, but the way benefits are received operates slightly differently:
SME R&D Tax Credits
- Offers an enhanced deduction on eligible R&D costs.
- Pre-April 2023 expenditure: An additional 130% deduction for eligible expenditure, resulting in a total deduction of 230%.
- Post-April 2023 expenditure: Enhanced deduction decreases to 86%, resulting in a total deduction of 186%.
- Loss-making companies: Can receive a payable tax credit, worth up to 10% of surrenderable losses (for pre-April 2023 expenditure). Losses can be carried back or forward.
RDEC Scheme
- Offers an ‘above the line’ expenditure credit shown as income in accounts.
- Pre-April 2023 expenditure: 13% of eligible R&D expenditure (net benefit ~10.5% after tax).
- Post-April 2023 expenditure: RDEC tax scheme rate increased to 20% (subject to Corporation Tax).
| Did You Know? Unlike other accountants, Randd offers a dedicated RDEC/SME R&D tax claim team. We provide a streamlined process, including a detailed technical report to ensure HMRC compliance & maximise your R&D tax credits. Meet Our Experts who will work with you to ensure the optimal outcome for your claim. |
SME & RDEC Scheme: HMRC Changes 2024
The most significant update from 1 April 2024 is merging the SME R&D tax credit and RDEC scheme into a single, unified scheme. For accounting periods beginning on or after this date, most companies will now follow one set of rules and benefit from a single R&D tax credit rate.
Understanding these updates is key to ensuring your R&D tax credit claim is accurate and maximised. Here are some key changes that come with the latest merged scheme:
- Single 20% Credit Rate
All businesses can now claim a 20% R&D expenditure credit. After Corporation Tax rates, this provides an effective benefit of 14.7% – 16.2%, simplifying the relief rate across SMEs and larger businesses. - Unified Rules for Subcontracted & Subsidised R&D
The rules that previously applied only to RDEC claims – covering subcontracted and subsidised R&D projects – now apply to all claims. Businesses will need to take extra care when claiming for projects involving grants or subcontracting arrangements. - Restrictions on Overseas R&D Expenditure
Costs related to overseas subcontractors and externally provided workers (EPWs) not paid through a UK payroll will generally no longer qualify for relief. These new restrictions aim to encourage R&D activity within the UK. - Enhanced Relief for R&D-Intensive SMEs
The threshold to qualify as R&D-intensive has been lowered from 40% to 30% of total business expenditure on R&D. Loss-making SMEs meeting this threshold will benefit from an enhanced 27% R&D tax credit, offering increased support to innovative businesses.
What Does This Mean For Your Claim?
These reforms mean SMEs and large businesses must carefully reassess how they structure their RDEC claim or SME R&D tax credit claim template, especially around subcontracting, overseas work and funding sources.
Concerned about the validity of your claim? Contact Randd today to ensure full compliance with HMRC guidelines and to maximise your R&D tax relief under the latest legislation.
Maximise Your R&D Tax Credit Claim with Expert Support from Randd
Understanding the differences between SME R&D tax credit and the RDEC scheme – especially with HMRC changes – is key to securing the full relief your business deserves. Whether you’re claiming under SME R&D tax relief or navigating an RDEC claim, expert guidance makes all the difference.
With over 15 years of experience, our specialist team ensures every eligible cost is included and your R&D tax credit claim is maximised.
Get in touch with Randd on 01332 409 711 or email [email protected] and see how much your business can reclaim today!
