In the UK, there are currently two R&D tax relief schemes – SME (Small & Medium Enterprise) and RDEC (Research and Development Expenditure Credit).

Usually, the scheme a company claims under is determined by the company’s size in terms of headcount, turnover and balance sheet total.  This calculation can get a bit tricky as any linked or partner enterprises must also be included, and sometimes other things must be taken into account such as certain grants.

It is possible for a company to claim for some of their costs under the SME scheme and some under the RDEC scheme.

The criteria for a qualifying R&D project is the same regardless of the scheme but the schemes do differ in terms of:

Qualifying costs

Costs related to subcontracted activities can be included in an SME claim but cannot in an RDEC claim.

The way in which the schemes generate a benefit for a company

• An SME claim could:
  • Reduce a company’s taxable profits meaning it pays less Corporation Tax.
  • Increase a company’s losses which can then either be:
    • carried back to reclaim Corporation Tax paid in a previous period,
    • carried forward to reduce Corporation Tax liabilities in a future period or
    • surrendered for a cash payment that is not taxable.

• An RDEC claim will:
  • Generate a taxable credit.

The amount of benefit generated

The benefit of an SME claim can be up to 33% of the qualifying R&D spend.

The benefit of an RDEC claim is around 10% of the qualifying R&D spend.

If you have any questions on this blog or anything R&D related, please contact us at [email protected].

Posted: 31 Mar 2022