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 |