SME SchemeR&D Tax Reliefs

R&D Tax Relief is a generous incentive for innovative SMEs, worth around 21.5% of qualifying R&D expenditure since April 2023.

What is the SME scheme?

The SME (Small or Medium-sized Enterprise) scheme is an R&D Tax Relief program in the UK designed to encourage small and medium-sized companies to invest in R&D. Under this scheme, eligible SMEs can claim a higher rate of tax relief on their R&D expenditure than larger companies.

The SME scheme is a valuable resource for smaller companies looking to invest in R&D and can provide generous tax savings for those who are eligible.

What is the benefit available through the SME scheme?

  • The SME scheme is currently worth around 21.5% of qualifying R&D expenditure.
  • In addition to this, SMEs can claim R&D Tax Credits if they are loss-making, which are worth up to 10% of surrenderable losses. This can lead to a maximum benefit worth 18.6% of the qualifying expenditure.
  • SMEs are able to deduct 186% of their qualifying R&D costs from their taxable profits, which includes an extra 86% deduction on top of the standard 100% deduction from the Profit & Loss account.

The rates listed above are current from 1 April 2023. For periods up to 31 March 2023, the previous rates still apply. This means an effective CT saving of 24.7% instead of 21.5% for SMES, as well as a 230% deduction of their qualifying R&D costs from their taxable profits (130% extra on top of standard 100% deduction from the profit and loss account. The maximum benefit for loss-making companies will also be 24.7%, not 18.6%.

To maximise this relief for your business, and to ensure your claim is fully compliant, we strongly recommend speaking to a qualified R&D tax specialist.

R&D Tax Reliefs are changing again

From 1 April 2024 the new merged RDEC scheme replaced the SME scheme. This applies for accounting periods beginning on or after 1 April 2024 and will adopt the existing RDEC rate of 20%. For loss-making entities and those with profits <£50k, the notional tax rate of 19% is applied, rather than the main rate of 25%. This means for most profit making companies the net tax saving is 15% of R&D expenditure (£15k for every £100k spent on R&D) and for loss makers it is 16.2% (or £16.2k for every £100k spent).

There is also a scheme for loss making only R&D intensive SME’s where their qualifying R&D expenditure accounts for 30% or more of total company expenditure. The R&D intensive scheme also applies to periods since 1 April 2023 to 31 March 2024 where the threshold was R&D expenditure of 40% or more of total company expenditure.  This scheme is similar to the SME scheme where R&D expenditure is enhanced by 86% (from 1 April 2023, 130% prior to that) and losses can be cashed in at 14.5%.

It’s really important you are aware of these new R&D schemes and depending on what accounting period you have, at which point you need to start making claims under the merged RDEC scheme or if the R&D intensive scheme might apply to you.

For further information about these changes and others, including changes to the rules on contracted R&D and overseas R&D costs, read our full Autumn Statement summary.

Do you qualify for the SME scheme?

To be eligible for the SME scheme, a company must have fewer than 500 employees and either:

  • an annual turnover of less than €100 million, or
  • a balance sheet total of less than €86 million.

It is important to note that the SME definition for R&D purposes is different to the definition used for normal EU reporting – which is fewer than 250 employees and a turnover of less than €50 million or a balance sheet less than €43 million.

To qualify, the R&D must be scientific or technological research and development that seeks to achieve an advance in overall knowledge or capability in a field of science or technology. Many businesses still do not realise they qualify, so it is always a good idea to check your eligibility.

Claims are made as part of the Corporation Tax return and should be supported with an R&D report detailing the R&D projects and expenditure. Whilst submitting the report is not currently mandatory, the rules are changing and for any companies with an accounting period beginning on or after 1 April 2023, they will now have to submit digitally an “additional information” form as well as the Corporation tax return.

What if a company does not qualify for the SME scheme?

If a company does not qualify for the SME scheme, they may still be able to benefit from R&D Tax Reliefs via the RDEC (Research & Development Expenditure Credit) scheme. This relief is available to companies which do not meet the SME scheme criteria outlined above.

While not as generous as the SME scheme, the RDEC scheme allows eligible companies to claim a tax credit worth up to 20% of their qualifying R&D expenditure and a net tax saving of 15%.

How to get started with R&D Tax Reliefs for SMEs

The Radius team at Shorts are experienced specialists in R&D Tax Reliefs and have helped hundreds of clients save many thousands of pounds in Corporation Tax through the SME scheme.

Our team applies a comprehensive approach to maximise the value claims while ensuring compliance. Our robust quality control measures ensure the accuracy and validity of claims before submission. It is vital now to use a specialist as the rules changed in April 2023 and HMRC are increasing compliance activity into R&D tax claims.

We will also handle most of the work, including collecting technical data, compiling qualifying expenses, and asking relevant questions, so you can focus on the day-to-day running of your business.


Real client examples

Download our practical and industry specific guide to R&D Tax Relief claims. The aim of this guide is to give real life examples of successful claims to demonstrate the type of activity which qualifies.


Case Study Guide

Check your Eligibility today

Our team has developed a free, interactive checklist to help you determine if your company or project is eligible for R&D Tax Reliefs. Try it today, or contact our team for a direct response to your query.


Check Eligibility