Research and Development (R&D) Tax Credits offer a valuable opportunity for businesses to boost their finances while fostering innovation.
Not only can they inject much-needed cash into your operations, but they also provide a window of up to 2 years after the relevant accounting period to make your claim.
However if you are planning to claim R&D for accounting periods beginning on or after 1 April 2023, you must submit a claim notification form to HMRC within 6 months of the year end if:
However, when it comes to choosing between the SME and RDEC schemes, several factors come into play.
If your business is actively engaged in R&D activities, you could be eligible for financial support from HMRC through R&D Tax Credits. The key question then becomes: which scheme is the right fit for your company?
Both the SME (Small-Medium Enterprise) scheme and the Research and Development Enhanced Credit (RDEC) scheme offer avenues for claiming corporation tax relief on R&D expenditure.
To qualify for either, your projects must align with the UK government’s definition of R&D and involve making scientific or technological advancements, such as developing new products, processes, or services.
The primary determinant for choosing between the two schemes revolves around the size of your company. If your company falls below certain thresholds—fewer than 500 employees and turnover under €100 million or a balance sheet total under €86 million—you may be eligible for the SME scheme.
However, there are scenarios where an SME might opt for the RDEC scheme. For instance, if your company’s R&D projects involve subsidies or grants, or if you have been subcontracted to carry out R&D work.
In some cases, a small company may even qualify for both schemes simultaneously. This typically occurs when a mix of R&D projects includes both grant-funded endeavours falling under RDEC and other eligible activities under the SME scheme.
It’s essential to consider how changes in your company’s size could impact your tax credit benefits.
HMRC allows for a transition period, permitting companies to maintain their SME or large company status in the event of fluctuations in staff count or financial thresholds.
This transition period applies to organic growth but not changes resulting from acquisitions, mergers, or linking with other entities.
It’s crucial to understand that the calculation mechanisms differ between the SME and RDEC schemes.
While the SME scheme offers an enhanced deduction, allowing for an extra 130% of R&D costs, which reduces to 86% of R&D costs for accounting periods beginning on or after 1 April 2023, to be deducted from annual profit, RDEC provides an “above the line” expenditure credit, taxable as income and reducing corporation tax liability.
These distinctions hold true for both pre- and post-April 2023 expenditure, with rates and deductions adjusted accordingly.
HMRC aims to process 95% of payable tax credit claims within 28 days for SMEs under the R&D tax credit scheme. However, claims through the RDEC scheme may take longer due to the increased complexity associated with larger businesses.
At Lumo, our team of experts specialise in guiding businesses through the claiming process, ensuring you maximise your entitlements while complying with HMRC regulations.
Book a consultation today to explore your options and embark on your journey toward greater financial stability and innovation.
Huw Evans - MD & Technical Engineer
Arnia
Are you ready to find out how much you could be due? You've got two options, request a callback and we will be in touch or answer a couple of questions via our eligibility checker
Get In Touch Check Eligibility
