Any R&D tax relief rate changes that come into effect during your financial year will affect the rate of R&D tax relief you can claim. To calculate the tax relief correctly, costs for an R&D claim must be split into the sub-periods ‘start of company’s financial year to 31st March’, and ‘1st April to the company’s year-end’.
For example, in April 2023 the tax credit rate for SMEs, i.e. the rate at which losses may be cashed in for an R&D tax credit, went from 14.5% to 10%. If your financial year end was December 2023 then the rate of tax credit you could claim would be:
- 14.5% for any losses (up to a cap) between 1st January 2023 and 31st March 2023
- 10% for any losses (up to a cap) between 1st April and 31st December 2023.
The way the loss in a company year is allocated between these sub-periods is based on the number of days in each sub-period.
Recent SME scheme rate changes
| April 2021 – March 2022 | April 2022 – March 2023 | April 2023 – March 2024 | April 2024 – March 2025 | |
|---|---|---|---|---|
| SME Enhancement Rate | 130% | 130% | 86% | 86% |
| SME Tax Credit Rate (rate at which losses may be cashed in for a R&D tax credit) | 14.5% | 14.5% | 10% | 10% |
| SME Tax Credit Rate for “R&D Intensive” companies | n/a | n/a | 14.5% | 14.5% |
| R&D proportion of total expenditure to qualify as ‘R&D Intensive’ | n/a | n/a | 40% | 30% |
Changes in the value of the benefit for SMEs
Assuming the 1st April 2023 changes apply to a full year:
- For profitable SMEs, this means that benefits will reduce from 24.7% of R&D Qualifying Expenditure to between 16.34% and 21.5%.
- For loss making SMEs the benefit will reduce from the range 18.85% to 33.35% of R&D Qualifying Expenditure to the range 8.6% to 18.6%.
- For loss making “R&D Intense” SMEs the benefit will reduce from the range 18.85% to 33.35% of R&D Qualifying Expenditure to the range 12.47% to 26.97%.
- “R&D Intense” SMEs are companies where 40% of your total expenditure is on qualifying R&D projects.
RDEC Expenditure Credit
| From 1 April 2020 | From 1 April 2023 | From 1 April 2024 | |
|---|---|---|---|
| RDEC Expenditure Credit | 13% | 20% | 20% |
Changes in the value of benefit for RDEC claimants
For the RDEC scheme claimants (large companies) the benefit will increase from 10.53% of R&D Qualifying Expenditure to 15% (in some cases 16.2%).
Corporation Tax
There is also a change to Corporation Tax rates from 1 April 2023, which affects the net-of-tax benefits available under the R&D tax relief schemes, as follows:
| Before 1st April 2023 | From 1st April 2023 | |
|---|---|---|
| Main Rate Corporation Tax Rate | 19% | 19% |
| Small Profits Corporation Tax Rate | 19% | 25% |
| Marginal rate for profit between £50,000 and £250,000 | n/a | 26.5% |