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What the relief is聽

Research and Development (R&D) tax relief is available for small and medium-sized enterprises (SMEs) with an accounting period that starts before 1 April 2024.听

If your accounting period begins on or after 1 April 2024, you can claim under the Research and Development merged scheme.

The R&D tax relief for SMEs allows your company to:聽

• deduct an extra 86% of your qualifying costs from your trading profit for tax purposes, as well as the normal 100% deduction, to make a total of 186% deduction聽
• claim a payable tax credit if the company has claimed relief and made a loss聽

The payable tax credit is worth up to:

• 10% of the surrenderable loss聽
• 14.5% of the surrenderable loss if the company meets the intensity condition for expenditure on or after 1 April 2023聽(read how to meet the intensity condition section of this guide)聽

Projects that do not qualify聽

You cannot claim this tax relief for a project if:聽

• it鈥檚 in the arts, humanities or social sciences (including economics)聽
• you鈥檝e received R&D relief, vaccines research relief or both, totalling more than 7.5 million euros for it
• you鈥檝e received any other State aid (excluding the SME tax relief) for it
• it鈥檚 for work subcontracted to you聽
• it鈥檚 subsidised in some other way, for example by a grant, but you may be able to claim on the part that is not subsidised聽

Find out if you can claim R&D expenditure credit instead.

Who can claim聽

To claim R&D tax relief for SMEs, your company must have:聽

• less than 500 staff聽
• a turnover of under 100 million euros or a balance sheet total under 86 million euros
• an accounting period beginning before 1 April 2024聽

You must include the staff, turnover and balance sheets of any linked or partner companies in your total when you work out if you can claim R&D tax relief for SMEs.

Linked and partner enterprises聽

You鈥檒l need to include a proportion of the staff, turnover and balance sheets of partner or linked enterprises. This should be based on the percentage of voting rights and capital that connects the enterprises.听

For example, if you own 30% of another enterprise you should include 30% of its staff, turnover and balance sheets when calculating if you鈥檙e a SME.听

Linked enterprises聽

Your company is linked to another one if:聽

• it holds over 50% of the voting rights in another enterprise聽
• another enterprise holds over 50% of the voting rights in your company聽
• it has other rights which allow it to control another enterprise聽
• another company has other rights which allow it to control your company聽
• your company and another enterprise are both controlled by another party聽

Partner enterprises聽

You have a partner enterprise if:聽

• another company holds 25% or more of your voting rights or capital聽
• you hold 25% or more of another enterprise鈥檚 voting rights or capital

How to meet the intensity condition聽

A company meets the intensity condition if:聽

• it鈥檚 claiming for an accounting period beginning on or after 1 April 2024聽
• its relevant R&D expenditure is at least 30% of its total expenditure (including that of any connected companies)听听

Generally, you will need to meet the condition for the period for which the claim is made.

There is also a grace period, which means you can claim if both of the following apply:

• you met the condition in your last 12-month accounting period
• you made a valid claim to SME relief or enhanced R&D intensive support (ERIS) in that period on expenditure incurred on or after 1 April 2023

The periods you need to consider are:聽聽

• 聽the accounting period for which the claim is made聽
• any periods of account of connected persons (worldwide) which overlap with the claimant鈥檚 accounting period聽

You鈥檒l need to identify the costs that relate to the periods under consideration. For accounting periods aligned with the accounting period of the claimant, use the exact figures for that accounting period.听聽聽

You must use a reasonable method to allocate costs of the connected company to the period of time covered by the accounting period of the claimant company where either:聽聽

• there is a mismatch of accounting periods between the claimant and one or more connected company聽
• a connected company is overseas (and so has no accounting period for UK tax purposes)聽

In certain circumstances it may be appropriate to split costs on a time (day) basis. In other cases it will be necessary to consider when costs were incurred to give a fair result, for example, where R&D expenditure is incurred unevenly through a period. Any basis you choose should be used consistently and you should be able to explain effectively why you鈥檝e used it.听

Relevant R&D expenditure means costs on which R&D relief could be claimed for the period, whether or not a claim is actually made. Generally, it must also form part of the total relevant costs.听聽聽

Total relevant expenditure includes:聽

• costs that are brought into account under Generally Accepted Accounting Practice (GAAP) in calculating the profits of a trade 鈥� if your accounts are prepared correctly under GAAP, this will be costs that feed into the profit before tax in your profit and loss account or income statement聽
• any pre-trading costs on which relief would be available under
• any amounts deducted in the tax computation under s1308 CTA 2009 Conditions to be satisfied 鈥� allowable as a deduction in computing the profit聽

It does not include:聽

• any amount of amortisation added back in the tax computation under s1308 CTA 2009 Conditions to be satisfied 鈥� allowable as a deduction in computing the profit聽
• any costs which consist of a payment, or other transfer of value, to another connected company

If your credit exceeds the PAYE cap

The tax credit you receive in the accounting period cannot exceed the PAYE cap, unless you鈥檙e exempt from the cap.

The PAYE cap amount is 拢20,000 plus 300% of the company鈥檚 relevant PAYE and National Insurance contributions liabilities.

For more information, read CIRD90600-PAYE cap.

What you need to do next聽

If your company and project are eligible to claim R&D tax relief for small and medium-sized enterprises, you can apply for advance assurance to find out if your claim will be accepted.听

You must also check if you need to tell HMRC that you鈥檙e planning to claim this relief.