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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.
Your business may qualify for the R&D SME scheme if it falls under one of the following conditions:
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 a subsidy 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.
SME R&D tax relief allows companies to:
In monetary terms, an SME claim will be worth between 19% and 27% 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.
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.
Should you choose to get specialist SME R&D advice from Buzzacott, we will:
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.
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.
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.
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.
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.
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.
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.
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.
The following costs may qualify for relief:
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.
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.
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.
From April 2024, the non-R&D intensive SME scheme will be merged with the large company RDEC scheme to create a unified R&D tax credit. The R&D intensive SME scheme will remain to support innovative start up businesses so the two schemes will run alongside each other.
Under the merged scheme claimants will be entitled to a 20% credit, which provides either a tax saving or cash repayment equal to 15% of the claim value.
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