UK R&D Rates for SMEs and RDEC from 1 April 2023

1 week, 5 days ago by Oliver Atkinson

What is Research & Development (R&D) tax relief?

R&D tax relief is a government incentive designed to provide financial assistance to companies engaging in research and development activities and promoting technological advancements. R&D rates regularly get updated by HRMC; this article will summarise the latest updates made in April 2023.

R&D Tax Relief for SMEs:

Your business may qualify for the SME R&D tax relief scheme if it falls under one of the following conditions:

• Fewer than 500 employees
• A turnover of under 100m euros
• Or a balance sheet total under 86m euros

Rates for qualifying SMEs include:

• Additional Deduction: The SME additional deduction is 86%. For example, if an SME spends £100,000 on R&D, they will be able to claim the original deduction of £100,000 plus an additional deduction of £86,000 creating a total deduction of £186,000.
• Losses: The SME credit rate is 14.5% for loss-making SMEs spending 40% of their expenditure on R&D, these companies are classed as R&D intensive. However, the SME credit rate will be cut to 10% for other companies. For example, if an R&D intensive loss-making SME spends £100,000 on R&D, they will be able to claim a tax credit of £26,970 (£186,000 x 14.5%). However, if any other loss-making SME spends £100,000 on R&D, they will only be able to claim a tax credit of £18,600 (£186,000 x 10%). It is important to note that the tax credit is applied to the lower of the enhanced deduction and the unrelieved trading loss.

R&D Expenditure Credit (RDEC):

For larger companies and those that do not meet the SME criteria, the RDEC scheme offers an alternative tax relief option. The RDEC encourages investment in R&D by providing a taxable credit based on eligible expenditure, such as staff costs, consumables, subcontracted R&D, and software.

From 1 April 2023 RDEC rates:

The RDEC rate is 20%. For example, if a business spends £100,000 on R&D, they will be able to claim a tax credit of £20,000. Rates were previously 13% from April 2020.

R&D Claims

The process of submitting R&D claims includes the following requirements:

• Digital claim submissions
• Endorsement by a senior company officer
• Provision of agent details if applicable
• Disclosure of expenditure categories and brief R&D activity details
• Advance notification to HMRC within six months of the claim period's end It is essential for SMEs and eligible companies to explore the benefits of these R&D tax relief schemes, for further information contact us to ensure your business takes full advantage of the incentives available.

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