SME R&D relief—tax credit
Produced in partnership with Anne Fairpo

The following Tax practice note produced in partnership with Anne Fairpo provides comprehensive and up to date legal information covering:

  • SME R&D relief—tax credit
  • Calculating the surrenderable loss
  • Example
  • Payable R&D tax credit
  • PAYE and NICs restriction
  • Historic impact of restriction when previously in force
  • Re-introduced restriction
  • Corporation tax restriction
  • Deduction or repayment?
  • Example
  • More...

SME R&D relief—tax credit

FORTHCOMING CHANGE: At Spring Budget 2021, the government announced a wide-ranging review of research and development (R&D) reliefs, beginning with a consultation exploring the nature of current private sector R&D investment and the impact of existing R&D relief schemes. The responses to the government’s 2020 consultation on the scope of qualifying expenditure for R&D tax credits, and in particular whether expenditure on data and cloud computing should qualify for relief, will now be considered as part of this wider review. See Practice Note: Tax—consultation and legislation tracker.

If a company that is a small or medium sized enterprise (SME) is:

  1. entitled to SME R&D relief by way of additional deduction, and

  2. makes a trading loss in the same period

it can surrender the research and development (R&D) element of the trading loss in exchange for a payable tax credit from HMRC (worth up to 14.5% of the surrenderable loss, or 33.35% of the company’s qualifying R&D expenditure, for expenditure incurred on or after 1 April 2015).

Note that this does not apply to SME claims for the R&D expenditure credit which may be repayable, but only under the rules applicable to that credit. For more, see Practice Note: R&D expenditure credit

The loss surrendered may be an actual trading loss or, if the SME is not yet trading and has made an election to

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