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%

 

£ Calculation
500,000 Profit 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)
370,000 Revised Profit
70,300 Corporation Tax at 19% (370,000 x 19% = 70,300)
24,700 Corporation 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
£ Calculation
(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
230,000 Maximum losses available to surrender to HMRC (230% x 100,000 R&D costs)
33,350 Maximum Tax Credit REceivd (230,000 x 14.5%) i.e. approx 33% saving
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