Presently, for accounting periods starting before 1 April 2024, there are separate R&D tax relief schemes for large companies and small and medium-sized (SME) companies. After this date, the two schemes are merged for most companies. The exception is “R&D Intensive” SME companies, who may continue to use the SME scheme, with some variations.
Merged scheme for Accounting periods stating on or after 1 April 2024
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RDEC and SME schemes for accounting periods before 1 April 2024
SME
The SME scheme can be used by companies and groups of companies with fewer than 500 employees, and at least one of:
- a turnover of less than €100 million or
- a balance sheet total of less than €86 million
A loss-making SME can claim a tax credit of £20,000 plus three times the sum of the Employer and Employee National Insurance and PAYE details for the company for the accounting period.
RDEC
The large company scheme, or Research and Development Expenditure Credit (RDEC) scheme is available for larger companies and SMEs with projects that are grant-funded, include subsidised R&D expenditure, or act as subcontractors to large companies.
The RDEC value is less the main rate of corporation tax. e.g. During a 19% CT year, an RDEC (gross) of £35,000 would only be cash payable at £29,412 with a cap calculated from the Employer and Employee National Insurance and PAYE amounts for each employee involved in the qualifying R&D work. The actual calculation is slightly more involved than this.
For both schemes
- The value only relates to revenue expenditure, so excludes capital items and, for example, dividends
- There are very specific guidelines about categories of expenditure allowable, so items not listed as claimable costs do not qualify (e.g. rents, rates, costs for R&D time that is not “qualifying”, etc.)