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R&D tax credits for SMEs

If you’re classed as a small or medium sized enterprise (SME), your research and development (R&D) costs could come under the more favourable R&D SME tax credit relief scheme. Find out everything you need to know about the scheme and how we can help you make a claim below.
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What is the SME R&D tax credit relief?

What is the SME R&D tax credit relief?

The SME R&D tax credit relief scheme is an incentive provided by the UK government to encourage small and medium-sized enterprises to undertake innovation and development activities, and to reward them for doing so. The relief is based on the research and development costs that your company incurs.

Can you claim the SME R&D scheme?

Can my business claim under the SME R&D tax credit relief scheme?

Your business may qualify for the R&D SME scheme if it falls under one of the following conditions:

  • Less than 500 staff
  • A turnover of under €100m
  • Or a balance sheet total under €86m

While this appears relatively straightforward, the SME status can be complicated if your company has external investors. These investors or shareholders can affect its SME status leading to the company being forced to claim under the less beneficial large company scheme. You may need to include the figures of connected companies and partner companies to work out if you are still considered an SME.

Additionally, a company cannot claim R&D SME relief if the project is already getting notifiable state aid or it has been subcontracted by another company. However, it may be able to claim the R&D Expenditure Credit (RDEC). This complication can lead to many errors in SME claims and we can help identify if you qualify for the SME scheme and review your claim.

How does the SME R&D scheme work?

How does the SME R&D scheme work?

SME R&D tax relief allows companies to:

  • Deduct an extra 86% of their qualifying costs from their yearly profit, as well as the normal 100% deduction, to make a total 186% deduction
  • Or claim a tax credit if the company is loss making, worth up to 10% of the surrenderable loss. 
  • Businesses that qualify as ‘R&D intensive’ can claim an increased tax credit if the company is loss making, worth up to 14.5% of the surrenderable loss.

In monetary terms, an SME claim will be worth between 16% and 19% of the qualifying spend identified. To claim the relief, your company needs to be an SME and show how their project meets the definition of R&D.

What R&D costs can SMEs claim?

What R&D costs can SMEs claim?

  • Employee costs - directly or indirectly involved in R&D
  • Agency staff - costs for those directly or indirectly involved in R&D
  • Utilities - fuel, power, or water
  • Materials and consumables - items used in the R&D project
  • Software - used by the R&D team
  • Subcontracted R&D expenditure
  • R&D capital allowances
How do you claim SME R&D tax credits?

How do you claim SME R&D tax credits?

You can claim R&D relief up to two years after the end of the accounting period it relates to. You can claim the relief by entering your enhanced R&D expenditure into the full Company Tax Return form (CT600). If you make a trading loss, you can choose to surrender this and claim a tax credit. It will help if a summary report that explains how the project meets the definition of R&D, including the technical advances made and the technical uncertainties involved, is submitted with the claim. Claims made under the SME scheme have been subject to scrutiny under HMRC’s revised estimation of fraud in the R&D scheme. Therefore, we advise SME claimants to contact an expert adviser prior to submitting their R&D claim to minimise their potential exposure to unnecessary interest.

How we can help

How Buzzacott can help with your R&D tax credit claim

Should you choose to get specialist SME R&D advice from Buzzacott, we will:

  • Identify if your business qualifies for the SME scheme
  • Carry out a comprehensive review of your R&D activity, working with you to ensure you are maximising your claim
  • Prepare a claim that minimises potential HMRC queries
  • Guide you through the whole SME claim process or on certain aspects of the claim.

Your claims will be prepared by our team of R&D tax specialists with a range of technical backgrounds. Our claims are part of our regulated services so you can be confident of the quality and standards of the work provided. Should you receive a compliance check letter from HMRC, we will work with you to prepare a strategy to resolve this quickly and efficiently, resulting in minimum disruption to your business.

Other incentives available

Other incentives available to SMEs

SMEs should be looking at all R&D incentives to support you through the business lifecycle. To find out more about these incentives, please click the links below.

Get in touch
Get in touch
If you would like to speak to one of our R&D experts to find out more about how we can help, please get in touch via the form below or call +44 (0)20 7710 3330.

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.

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