SME’s are small and medium-sized enterprises, their definition can be found at (HMRC).  In short a SME for R&D tax relief purposes is a company which together with other group and linked enterprises does not exceed:-

  • 500 employees
  • €100m turnover
  • €86m balance sheet

The cash benefit of a R&D claim varies dependent on if the company is loss making or profitable in the year.  On average the benefit received is 25% of the R&D project spend, however can vary between 14.5% and 33% if your company is loss making.

How the relief works for Profitable SME’s

  • Business made profits for the year of £500,000
  • Corporation Tax before R&D claim @ 19% = £95,000
  • Business incurred £100,000 of R&D expenditure
  • SME R&D relief 230%
500,000Profit before R&D
(130,000)R&D Enhanced Deduction (100,000 x 230% = 230,000. Note: 100,000 of costs are already included in the profit figure so only deduct 130,000)
370,000Revised Profit
70,300Corporation Tax at 19% (370,000 x 19% = 70,300)
24,700Corporation Tax Saved (95,000 – 70,300 = 24,700). i.e. approx. 25% saving

How the relief works for Loss Making SME’s

  • Business made a Loss for the year of £500,000
  • Business incurred £100,000 of R&D expenditure
  • SME R&D relief 230%
  • Surrender credit 14.5% of Enhanced R&D costs
(500,000)Loss for the year
(130,000)R&D Enhanced Deduction (100,000 x 230%. Note 100 of costs are already in cluded in the profit figure so only deduct 130,000.
(630,000)Revised Loss for the year
230,000Maximum losses available to surrender to HMRC (230% x 100,000 R&D costs)
33,350Maximum Tax Credit REceivd (230,000 x 14.5%) i.e. approx 33% saving
Is my business eligible for R&D tax relief?
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