R&D tax relief for small and medium-sized enterprises (SME)

As the UK’s leading specialist R&D tax consultancy, we’re here to help you get the most out of your SME scheme R&D claim.
Our team can help small to medium enterprises receive significant tax relief on eligible expenses.

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Through the SME scheme, you can claim tax relief on your R&D projects. This R&D tax relief allows your company to deduct an additional 86% of qualifying expenditure from your trading profit for tax purposes, on top of the standard 100% deduction, resulting in a total deduction of 186%. Additionally, if your company has claimed this relief and incurred a loss, you can claim a payable tax credit.

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How much R&D tax relief can I claim under the SME scheme?

Before April 2023 expenditure

For expenditure before April 2023, the R&D SME Scheme allows companies to claim up to 33% of research and development costs. This is because if your SME is profitable, you can deduct an extra 130% of qualifying R&D costs from yearly profits. This is on top of the normal 100%, making a total 230% deduction. If you’re not profitable, that’s also okay! If you are loss making, you can claim up to 14.5% of the surrenderable loss.

April 2023 changes

For expenditure on or after April 1 2023, the additional deduction for SMEs will decrease from 130% to 86%, and the SME R&D Tax Credit rates will reduce from 14.5% to 10%. If, however, your company is loss making but classed as R&D intensive (where qualifying R&D spend adds up to at least 40% of total spend) you’ll still be able to claim using the 14.5% credit rate.

For accounting periods beginning on or after April 2024

The SME scheme is being replaced by Enhanced R&D Intensive Support (ERIS). This is only available for loss-making R&D intensive SMEs (whose qualifying R&D expenditure covers at least 30% of their total expenditure). SMEs who do not meet this criteria may still be eligible for R&D relief through the new Merged R&D Expenditure Credit scheme.

Is the SME Scheme right for my business?

If you’re a small/medium enterprise carrying out R&D and looking for tax relief, HMRC needs to see that you meet these key thresholds:
· Staff headcount is less than 500
· Turnover is less than €100m, or your balance sheets total less than €86m (regardless of your headcount).*

*You will need to convert turnover from sterling to euros.

If you pass these criteria, and you’re a UK limited company that’s subject to UK corporation tax, then it’s likely that you’ll qualify. If you don’t meet these criteria, but you’re still conducting R&D, you can still look to claim under the Research and Development Expenditure Credit (RDEC).

How does an R&D project qualify for the SME scheme?

To qualify for the R&D SME scheme, your project must:  

·      Look for an advance in science and technology  
·      Face uncertainty with achieving this advance  
·      At least have tried to overcome the uncertainty  
·      Not be easily worked out by a professional in the field

You cannot claim the tax relief for a project if the R&D work has been subcontracted to you, or if you’ve received State aid. You also can’t claim for any subsidised work (e.g., work paid for by a grant) however, you may be able to claim for a portion of your work if not all of your expenditure was subsidised.

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What costs are eligible for tax relief under the R&D SME scheme?

There are a variety of different costs that qualify for R&D relief. These include:

· Consumables
· Salary
· Externally provided workers (EPW)
· Software licences
· Sub-contractors

From April 2023, it is also be possible to claim for pure mathematics, cloud computing, licence payments for datasets and data analytics.

Examples of costs that do not qualify

Some costs can’t be claimed. These include:

·       Production and distribution costs
·       Capital expenditure on buildings and equipment
·       The cost of land
·       The creation of patents and trademarks.

Why work with Leyton?

Beyond just identifying expenses, our team’s expertise and familiarity with HMRC processes ensure that all claims are made in compliance with the latest laws and regulations.

Leyton is a member of the HMRC consultative committee for R&D incentives. As a result, we meet with the HMRC team overseeing R&D quarterly.

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Increase efficiency
Our experts will review your existing R&D record-keeping process and input improvements to help maximise the value of your claim
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Mitigate risk
From a compliance perspective, our wealth of tax expertise and close links with HMRC ensure you are consistently aligned with new tax legislation and regulations, mitigating the risk of an enquiry.
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Improve your net financial benefit
Our team are dedicated to maximising the potential value of claims, and our technical processes get under the skin of your business to uncover all possible areas which can be claimed for, rather than a one-size-fits-all approach.