The SME R&D relief allows small businesses to deduct an extra 130% of their qualifying costs from their yearly profit, as well as the normal 100% deduction, to make a total 230% deduction. It also allows to claim a tax credit if the company is loss making, worth up to 14.5% of the surrenderable loss.
According to a report by Catax of the 3.5 million British small to medium sized enterprises (SMEs) actively trading, around 57 per cent or 1.9 million are eligible for R&D relief. It also claims that as the tax credits are worth on average £43,000 to those that receive them, it calculates that if all the SMEs eligible claimed, it would cost the Government £84.2billion.
As per the guidance set out by HMRC-
Companies That Can Claim Relief
You can claim R&D tax relief if you’re a SME with:
- less than 500 staff
- a turnover of under €100m or a balance sheet total under €86m
If your company has external investors, this can affect your SME status. You may need to include the figures of linked companies and partner companies when you work out if you’re a SME.
You can’t claim SME R&D relief if the project is already getting notifiable state aid or you’ve been subcontracted by another company. However, you may be able to claim the Research and Development Expenditure Credit (RDEC).
The staff, turnover and balance sheets of any linked companies should be included in your total. Your company is linked if:
- it holds over 50% of the voting rights in another company
- another company holds over 50% of the voting rights in your company
You have a partner company if:
- another company holds over 25% of your voting rights or capital
- you hold over 25% of another company’s voting rights or capital
You need to include a proportion of the staff, turnover and balance sheets of partner companies. This should be based on the percentage of voting rights and capital that connects the 2 companies. For instance, if you own 30% of another company you should include 30% of its staff, turnover and balance sheets when calculating if you’re a SME.
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