Research and development SME tax reliefs

By Tolley

The following Corporation Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Research and development SME tax reliefs
  • Enhanced R&D deduction for SME’s
  • Cap on R&D aid
  • SME R&D tax credit
  • Taking a repayment or keeping a deduction
  • SMEs and R&D expenditure credit (RDEC)
  • Subsidised R&D expenditure

This document discusses the rules in detail, together with the cap on R&D aid; R&D tax credit; the outcome of 2015 consultation process; and the detail on the advance assurance for small companies.


Enhanced R&D deduction for SME’s

A company incurring qualifying R&D expenditure can claim a deduction equal to 230% of the relevant costs incurred in calculating its taxable total profits. 

CTA 2009, s 1044(8)

The deduction is given by allowing a further 130% of the qualifying R&D expenditure, in addition to the usual 100% deduction for such qualifying expenditure, in arriving at the adjusted profits for tax purposes.

HMRC has produced a guide to R&D tax relief for small companies which can be found at Making R&D easier for small companies .

The definition of an SME is detailed in Meaning of SME and large companies for R&D and qualifying expenditure is set out in the Qualifying expenditure for R&D tax relief guidance note.

Note that where the company also qualifies to claim one of the creative sector reliefs (such as television tax relief and video games relief) it must choose between SME R&D relief and the creative sector reliefs, it cannot claim both in respect of the same project because they are both State Aid. An SME can claim large company R&D expenditure credit (RDEC) on the same project for which a creative sector relief claim has been made but the expenditure on that project can either be relieved under the creative sector relief or RDEC it cannot be relieved under both schemes, see below for more details of R&D claims where State Aid has been received.

Also see the Television tax reliefs ― key provisions and Video games tax relief ― key provisions and subsequent guidance notes for more on these other reliefs.

Cap on R&D aid

Under EU State Aid rules, the amount of R&D tax relief that a company is able to claim through the SME scheme cannot exceed €7.5 million throughout the lifetime of any single project. The SME must check whether it has exceeded the €7.5 million aid cap by carrying out a calculation using the formula set out in CTA 2009, s 1114. That formula compares the SME

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