Tax relief for R&D intensive SMEs

In the Autumn Statement it was announced that the existing R&D Expenditure Credit and Small and Medium Enterprise Scheme will be merged from April 2024.

It was also confirmed that there will be an enhanced regime for R&D intensive SMEs. The rate at which loss-making companies are taxed within the merged scheme will be reduced from 25% to 19%, and the threshold for additional support for R&D intensive loss-making SMEs will be lowered to 30%.

Loss-making companies claiming the existing SME tax relief will be eligible for a higher payable credit rate of 14.5% if they meet the definition for R&D intensity. This represents an effective tax saving of £27 per £100 spent on qualifying R&D.

The intensity threshold will be reduced to 30% for accounting periods beginning on or after 1 April 2024. A loss-making SME company with qualifying R&D expenditure of 30% or more of its total expenditure will be able to claim the enhanced support for any accounting period beginning on or after that date.

There will be a one-year grace period for companies that fail to meet the R&D intensity threshold due to a qualifying one-off event. This will apply to companies that had successfully claimed enhanced support in the previous year. The one-year grace period will apply to accounting periods beginning on or after 1 April 2024.