R&D SME FAQs
Is there a deadline for claiming SME R&D relief?
You can make a claim under the SME scheme for up to two years after the end of the accounting period in which you incurred the qualifying R&D expenditure. For example, if your accounting period ends on 31 March 2023, you can make a claim for SME tax relief on qualifying R&D expenditure incurred between 1 April 2023 and 31 March 2025.
However, with the introduction of claim notification requirements, you may not be able to claim for a tax year starting on or after 1 April 2023 if you have missed the deadline for submitting this form. So, businesses need to be thinking about making an R&D claim as they’re incurring the qualifying spend.
What activities qualify for SME tax relief?
The R&D scheme is purposely broad, so a range of different activities can be considered eligible under the scheme. To qualify, your R&D project must seek to achieve an advance in science or technology, which requires the resolution of technological uncertainties.
How do I claim SME tax relief?
You can claim the relief by entering your enhanced R&D expenditure into the full Company Tax Return form (CT600) after submitting an additional information form online. If you make a trading loss, you can choose to surrender this and claim a tax credit. If you make a profit, you can reduce your corporate tax liability.
What are the benefits of claiming SME tax relief?
Claiming R&D tax relief will provide your business with a cash credit or reduce the amount of corporation tax, supporting cashflow and encourage your business to invest in R&D and boost innovation. However, companies need to factor in the cost of making a claim and the potential costs of responding to a compliance check when budgeting for an SME R&D claim. With the reduction in SME rates from 1 April 2023, it’s worth speaking to an advisor such as Buzzacott to understand how the benefits are changing.
Can I get professional help to navigate the SME R&D tax relief scheme?
While you do not need a specialist to claim SME tax relief, we find that many claimants are unaware of what projects and expenditure types are eligible, and we also see mistakes in claims. As a result, your claim may be missing expenditure that could rightfully be claimed, or it may include costs that aren’t qualifying, which could mean risking an HMRC enquiry into your R&D claim. Therefore, having your claim reviewed by an independent regulated firm, such as Buzzacott, could significantly reduce the risk of an enquiry.
Who is eligible for SME R&D tax relief?
In order to be eligible under the scheme, you need to be a company classified as an SME, which is subject to corporation tax in the UK. However, the company must also be carrying out eligible R&D activities in the UK, whereby the R&D activities must be directly related to the trade.
What qualifies as eligible R&D expenditure for SMEs?
The following costs may qualify for relief:
- Agency staff - costs for those directly or indirectly involved in R&D
- Employee costs - directly or indirectly involved in R&D
- Materials and consumables - items used in the R&D project
- Subcontracted R&D expenditure
- Software - used by the R&D team
- Utilities - fuel, power or water
Again, the scheme is changing, and a restriction on overseas costs is likely to be introduced in 2024, which will substantially impact innovative SMEs. We can keep your business up to date with changes to the scheme so you can plan for the future.
Is there a cap on the amount of SME R&D relief that can be claimed?
From 1 April 2021, SME R&D tax credit claims were subject to a cap where SME businesses can only claim a payable tax credit of up to 300% of their combined PAYE and NIC liabilities, plus a £20,000 buffer.
Are there any specific reporting requirements for SME R&D relief claims?
From 8 August 2023, claimants are now required to submit an additional information form in order to submit their R&D claim. This will include a detailed account of your qualifying expenditure, the number of projects worked on, a baseline of science or technology that you planned to advance, the advance in scientific or technical knowledge, the scientific or technological uncertainties faced, and details on how your project sought to overcome these uncertainties. However, HMRC may request to see contemporaneous records during any claim review, so we recommend setting up processes to capture key information throughout the project to support any R&D claim.