Research and development SME tax reliefs

By Tolley

The following Owner-Managed Businesses guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Research and development SME tax reliefs
  • Enhanced R&D deduction for SMEs
  • SME R&D tax credit
  • SMEs and R&D expenditure credit

Enhanced R&D deduction for SMEs

A company incurring qualifying R&D expenditure from 1 April 2015 can claim a deduction equal to 230% of the relevant costs incurred in calculating its taxable total profits. This was increased from 225% for expenditure incurred between 1 April 2012 and 31 March 2015, and from 200% for expenditure incurred prior to 1 April 2012 (lower rates applied earlier still, but these are now outside the scope of this note).

CTA 2009, s 1044(8)

The deduction is given by allowing a further 130% (as above, lower amounts applied for expenditure incurred before 1 April 2015) 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 here: Making R&D easier for small companies .

The definition of an SME is detailed in the Outline of tax relief for research and development (R&D) expenditure ― Meaning of SME and large companies for R&D guidance note, 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.

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