Research and development SME tax reliefs

Produced by Tolley

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

  • Research and development SME tax reliefs
  • Enhanced R&D deduction for SMEs
  • Cap on R&D aid
  • SME R&D tax credit
  • PAYE cap on the R&D credit
  • Taking a repayment or keeping a deduction
  • SMEs and R&D expenditure credit (RDEC)
  • Subsidised R&D expenditure
  • Subsidies and coronavirus (COVID-19) support

Research and development SME tax reliefs

Enhanced R&D deduction for SMEs

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.

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 the Research and development (R&D) expenditure ― overview guidance note and qualifying expenditure is set out in the Qualifying expenditure for R&D tax relief guidance note.

The Research and development expenditure for SMEs (A) video sets out the key qualifying criteria for the regime, together with some illustrative examples.

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.

From 1 January 2021, with the end of the Brexit transition/implementation period entered into following the UK’s withdrawal from the EU, state aid rules have been replaced by a subsidy control system in the EU-UK Trade and Cooperation Agreement (TCA) which prohibits

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