R&D tax relief for small and medium-sized businesses

According to HMRC, over the last year, more than 50,000 small businesses made Research and Development tax credit claims. Overall, the tax relief came to a total of around £6bn, half of which was claimed by small companies.

R&D tax relief allows for small and medium-sized enterprises (SMEs) to deduct an extra 130 per cent of their qualifying costs from their yearly profit, in addition to the normal 100 per cent deduction. The total deduction is therefore 230 per cent.

Alternatively, if an SME has surplus tax losses, they can be forfeited to give a tax credit at a rate of 14.5 per cent.

To qualify as an SME, a company must have less than 500 employees and a turnover of less than €100 million or a balance sheet less than €86m.

A key requirement, to be eligible for the relief, is that the expenditure should be incurred as part of a project. The project must seek an advance in science or technology, relating to that specific company, whilst seeking to overcome an uncertainty.

Even if the project is unsuccessful a company must:

  • Show how they tried to solve the uncertainty (research, testing and analysis)
  • Explain why a professional could not easily work out the issue (this can be done by showing how other attempts to find a solution had failed)

Claims for a proportion of the overall cost of staff working on the project can be made, together with 65 per cent of relevant payments made to agencies who provided staff. Utility costs and materials may also be included.

Businesses who wish to make an R&D claim can do so, following the submission of a company tax return to HMRC. Once the tax return is submitted there is the option to ‘support your claim’ which provides all the information which is required, along with explaining the calculations process.

If you would like more information on Research and Development tax relief, contact us today to discuss your eligibility and how we can assist in the computations of the tax credit, along with filing any amended returns where necessary.

Call us on 01704 891676 or email info@sptaxeurope.co.uk