SME R&D tax relief allows UK companies to deduct an extra 130% of their qualifying costs from their yearly profit, as well as the normal 100% deduction, to make a total 230% deduction; and to claim a “payable” credit, worth up to 14.5% of the surrenderable loss, if the company is loss-making.
Criteria to qualify for R&D
The work that qualifies for R&D relief must be part of a specific project to make an advance in science or technology. The project must relate to your company’s trade – either an existing one, or one that you intend to start up based on the results of the R&D.
To get R&D relief you need to explain how a project:
- looked for an advance in science and technology
- had to overcome uncertainty
- tried to overcome this uncertainty
- could not be easily worked out by a professional in the field
Your project may research or develop a new process, product or service or improve on an existing one.
Research and Development Expenditure Credit (RDEC)
Large companies can claim RDEC for working on R&D projects. It can also be claimed by SMEs and large companies who have been subcontracted to do R&D work by a large company. The RDEC is a tax credit. It was 11% of your qualifying R&D expenditure up to 31 December 2017. It was increased to 12% from 1 January 2018 to 31 March 2020, and is 13% from 1 April 2020.