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R & D Tax Relief for SMEs

August 17, 2016 | Author: | Posted in Taxes

Many of the companies works on research and development activities. Your company can be one such. If so, read on to find out all you need to know about the R & D tax relief scheme.

R & D tax relief

This is a scheme that is backed by the government. This scheme is introduced to encourage companies that are working on research activities and product development. If your research activity is experimental in nature, then you can claim for this relief that is provided by the government. This is given in terms of cash payments or by reducing the amount of annual taxes payable to the government.

If your company is a large company, it is easy to prove your research activities. But however, if your company is an SME too, you can still go ahead and claim R & D tax relief with the same ease.

Tax relief for SME companies

If your company is small or medium sized enterprise, then you can still claim the R & D tax relief only if your company or project is dealing with research activities.  You can claim for the R & D tax relief which will cover approximately 25% of the expenditure you do towards the research activity.

Your company can be termed as SME if your company satisfies the following criteria :

1.  Balance sheet is under 86 million pounds.

2.  Annual turnaround is less than 100 million pounds.

3.  The number of employees in your company should be less than 500.

4.  You should not be part of any other larger sister-concern company.


•  Remember that you cannot claim for the R & D tax relief under the SME scheme, if you are a sub-contractor to any other large company.

•  You cannot claim for the R & D tax relief if your project is subsidized by the government – meaning, getting a subsidy/grant from the government might affect the amount you can claim under this scheme.

But if you satisfy the conditions of R & D and your company is an SME, then you can claim for this SME tax relief fund.

Modes of claim :

There are two different modes in which you can claim for the R & D tax relief. One is by reducing the amount of CT (corporate taxes) that you pay to the government. The other is by the means of getting a cash payment. If your company is under losses, you would prefer to go for the second option and receive an R & D tax credit. This prevents you and your company from carrying forward your losses. This cash payment will be made by the HMRC to your account.

Claim procedure :

Once you justify to the HMRC that your company and project are purely research oriented, then it is very easy to make the R &D tax relief claim from the HMRC. Through this relief scheme, you can claim for :

1.  Direct labor costs – employees, contractors and sub-contractors for the research task.

2.  Software – used for R &D activities only and the related licenses cost for the software used.

3.  Utilities – power and fuel.



Swanson Reed, UK’s leading specialist in Research and Development (R&D) tax relief ( ) advisors that helps start-ups, small & mid-sized businesses, and large innovation companies claim R&D tax credit and incentives by the HMRC. To learn more about us, visit

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