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About the SME scheme

What is the SME scheme?

Companies that incur costs related to research and development (R&D) activities, and that meet the qualifying criteria to be considered eligible for the ‘Small and Medium Enterprise’ (SME) Scheme, may claim an enhanced tax deduction. This deduction can be used to reduce the company’s tax liability or in some cases, surrendered for a payable tax credit.

If you would like to discuss any of the matters raised, please get in contact with one of our R&D specialists.

What level is available?

Under the SME Scheme, the benefit is delivered as an enhanced tax deduction. The benefit of which will appear in your financial statements ‘below the line’ (profit before tax).

Rates of benefit depend on the tax profile of your company, as follows:

Pre April 23
Post April 23
SME relief
130%
86%
SME tax credit rate
14.5%
10%
Tax paying entity (per £1 spend)
24.7p
21.5p
Loss-making entity (per £1 spend)
33.35p
18.6p
RDEC gross credit
13%
20%
Net of tax benefit per £1 spend
10.53p
15p

How do I claim tax relief?

What qualifies as R&D expense

Once you have identified eligible activities, you will need to assess which expenditure items qualify for the R&D claim. The following areas apply:

What evidence do I need?

The R&D incentive schemes are particularly generous regimes, and HMRC rightly pay close attention to ensuring that these incentives are correctly focussed towards eligible businesses. As such, claims should be supported by documentation that:

Where RSM assists you in making a claim, we would typically recommend a self-standing report with financial appendices that provides all this information.

By going through these steps, you will help HMRC process the claim faster, and minimise the risk of further enquiries, or extending the period for which an enquiry can be raised (through discovery assessments where insufficient information is initially provided), bringing you earlier certainty over the outcome of your claim.

How will I receive my credit?

How you receive your credit will depend on the tax profile of your company.

‘Proposed future scheme’

The Government is consulting on the introduction of a combined ‘single scheme’ which could be introduced from as early as April 2024. Proposed design principles include:

This scheme would be applicable for all businesses, with the exception of loss making ‘R&D intensive’ SMEs, for which a supplementary regime would be retained (effective from 1 April 2023) operating on the following principles:

To find out more about R&D tax reliefs and how we can help, please contact James Tetley, Sheetal Sanghvi, Graham Steele or Constantine Costas

authors:james-tetley