R&D Tax Relief
Helping SMEs invest in innovation

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. 

Who can benefit
from the incentive?

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:

  • Employees of less than 500
  • An annual turnover of less than €100 million, OR a total Balance Sheet of less than €86 million
  • Where all the entities, within a group, are included when calculating the threshold
  • Any incorporated company that is conducting innovation. This is regardless of its sector of activity

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What are the advantages?

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 from a company’s taxable income

Moreover, they have an effective cost reduction of 24.7%. 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% (as of 1 April 2015). For this reason, it could mean that the company receives a cash credit equivalent to 33.33% of what it spent carrying out the R&D project

Calculation

Net benefit up to 33.35% of the R&D expenditure

R&D for SMEs Eligible expenditure

Below are the eligible expenditures for SMEs:

  • Staffing costs
  • Software
  • Consumables
  • 65% of Subcontracted activities
  • 65% of Externally Provided Workers (EPWs)
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