SME Claims
SMEs can claim back up to 33% on their R&D expenditure, which can be offset against corporation tax or received as a direct cash credit from HMRC. An SME is regarded as a firm with fewer than 500 employees combined with a revenue of less than 100m euros or a balance sheet less than 86m euros.
The average SME research and development claim in the UK is £53,876 and in London that rises to £81,000.
The amount of credit you can claim back depends upon a number of scenarios. The major factor is your current financial position:
– Loss making companies can claim up to 33% back
– Profit making companies can claim up to 25% back
– Companies breaking even can claim up to 18% back
An SME that has received grant funding will mean that either some or all of their claim will need to be filed through the RDEC scheme.
Note, the correct treatment to help you maximise your claim value and the amount you can claim back depends upon the nature of the grant (eg, if the grant was state aid). One of our team can advise you.
A Loss-Making SME
For example, if you made a trading loss of £400,000 in your last financial year and spend £200,000 on eligible R&D activities, we can get you back up to £66,700
Trading loss: £400,000
After Credit
Eligible R&D spend: £200,000
R&D enhancement: £200,000 x 130% = £260,000
Enhanced trading loss: £200,000 + £260,000 = £460,000
Payable Tax credit: £460,000 x 14.5% = £66,700
£66,700 paid out as a credit from HMRC
A Profit-Making SME
For example, if you made a profit of £400,000 in your last financial year and spent £200,000 on eligible R&D activities, we can get you up to £49,400 back.
Profit Before Credit: £400,000
Corporation Tax (19%): £400,000 x 19% = £76,000
After Credit
Eligible R&D spend: £200,000
R&D enhancement: £200,000 x 130% = £260,000
New taxable profit: £400,000 – £260,000 = £140,000
New Corporation Tax (19%): £140,000 x 19% = £26,600
Saving: £76,000 – £26,600 = £49,400
£49,400 either as tax deduction or overpayment credit
RDEC Claims
As of 1st April 2020, companies can receive 13% credit returned on their total qualifying R&D expenditure through the RDEC scheme. However, it’s worth noting that the RDEC scheme credit is subject to corporation tax at 19%, so companies receive approximately 11p back for every £1 spent.
What is different about the RDEC scheme however is that it can be shown above-the-line on the balance sheet, which helps boost your visible profitability. This also means that it’s independent of your company-wide tax position, meaning there won’t be indirect deductions on this credit once it hits your accounts.