Under this scheme, qualifying R&D expenditure is enhanced by an additional 130% (86% from 1 April 2023) in the company’s tax computation.
For example, if £100,000 of qualifying expenditure is identified and this has already been included in the company's accounts, an additional deduction of £130,000 (£86,000 from 1 April 2023) can be included in the tax computation.
For a profitable SME, the additional deduction in the tax computation will reduce taxable profits. The company will then benefit from a reduced corporation tax liability.
For a loss-making SME, the additional deduction will increase the company’s taxable loss. The company can then benefit from surrendering the loss for a payable R&D tax credit.
In some cases, an SME may see a combination of the above two benefits.
The net benefit of the SME scheme depends on the tax position of the company.
Profitable
A profitable SME can expect to see an effective benefit of up to 25% (i.e. 25p for every £1 of qualifying R&D expenditure).
From 1 April 2023, a company paying corporation tax at 25% can expect to see an effective benefit of up to 21.5%.
Loss-making
A loss-making SME can expect to see an effective benefit ranging from 18% to 33% (i.e. a maximum of 33p for every £1 of qualifying R&D expenditure).
From 1 April 2023, the effective benefit will range from 8.6% to 18.6%.