R&D Tax Incentives
The R&D Tax Relief Scheme was introduced in 2000 and was created for Innovative SMEs. In fact, it is the main source of state support in the UK. Hence, it aims to encourage companies, to both develop as well as improve new products and services.
According to R&D Tax Relief purposes, an SME has double thresholds with respect to the standard European Commission definition. The following is what is considered an SME:
The R&D scheme support for SMEs applies for both profit as well as loss making companies
This is a company with an enhanced deduction of 230% of eligible R&D expenditure (86% from April 2023) from a company’s taxable income
Moreover, they have an effective cost reduction of 24.7% (21.5% from April 2023). This is after applying for the corporate tax rate
Loss making companies are those that are carrying the losses generated forward to offset a future tax liability.
Furthermore, they are also companies that are surrendering the losses for a payable tax credit at a rate of 14.5% (10% from April 2023). For this reason, it could mean that the company receives a cash credit equivalent to 33.33% of qualifying R&D expenditure (18.6% from April 2023).
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Net benefit up to 33.35% of the R&D expenditure
Below are the eligible expenditures for SMEs:
