Changes to R&D Tax Relief Rates

3 March 2023

From 01 April 2023, the rates for the SME and RDEC reliefs are changing. 

advice : Policy and Tax

The Government is committed to supporting SME R&D. It has a target to raise investment in R&D to 2.4% of the UK GDP by 2027. R&D tax relief contributes to that goal by reducing the cost of innovation for UK companies.

The R&D schemes (SME and RDEC) are undergoing various changes with the government aiming to:

– Make the schemes more effective at incentivising companies to increase their R&D spend.

– Increase the benefit received by the UK economy.

– Reduce fraud.

– Create consistency between the SME and RDEC schemes.

– Update the eligible R&D projects and spending so they are reflective of today’s world.

As part of those aims the government has changed the rates for both the SME scheme and RDEC scheme which we cover below.

We have written other blogs discussing the other changes to the R&D Tax relief scheme which you can find in detail here

What are the changes?

From 01 April 2023, the rates for the SME and RDEC reliefs are changing. 

In summary, the SME scheme is becoming less generous whilst the RDEC scheme is becoming more generous.

Pre-April 2023From April 2023
Loss-making SMEEnhanced deduction: 130%
R&D credit: 14.5%
Benefit: 33.4%*
Enhanced deduction: 86%*
R&D credit: 10%
Benefit: 18.6%*
Profit-making SMEEnhanced deduction: 130%
Corporation tax rate: 19%
Benefit: (up to) 24.7%*
Enhanced deduction: 86%
Corporation tax rate: 25%
Benefit: (up to) 21.5%*
RDEC companyRDEC credit rate: 13%
Corporation tax rate: 19%
Benefit (after tax): 10.53%
RDEC credit rate: 20%
Corporation tax rate: 25%
Benefit (after tax): 15%
*This is the cash benefit. This benefit is reduced when it is taken into consideration that the claimant company forgoes the ability to offset the R&D costs included in the claim against future taxable profits. This typically means it is more beneficial not take a cash credit but wait until the company is profitable and paying corporation tax. However, this is at a future point and any potential benefit would need to take into consideration the risk and timing of when that future point may occur.

The reminder of the differences between the SME and RDEC schemes

This article references the SME scheme and the RDEC scheme. Various changes are happening at the moment concerning the qualifying spend but as a quick reminder here are some of the key features/differences between the two schemes:

FeatureSME SchemeRDEC Scheme
What qualifies?Same criteria for both schemes.Same criteria for both schemes.
Which companies?A firm with fewer than 500 employees with either:
• An annual turnover under €100 million.
• A balance sheet under €86 million.
Any company but predominately large companies
SME companies can also claim in some cases for expenditure not qualifying for SME scheme.
MechanismEnhanced CT deduction: 186% (100% basic + 86%).
For lossmakers, optional payable credit: can surrender up to the 86% loss at a rate of 10%.
‘Above the line’ credit: 20% of expenditure
Credit is taxable (CT).
SubcontractingCan claim for a portion of payments to subcontractors.Only claim in-house expenses, unless activity subcontracted to qualifying bodies, individuals, or partnerships of individuals.
PAYE/NICs capLimited exemptions. Cap set at £20,000 plus 300% of its total PAYE/NICs liability.No exemptions. Cap set at 100% of relevant PAYE/NICs liability.
Other subsidiesClaim can be reduced if the R&D project is subsidised, or a grant is received in respect of it, and is totally barred if the project has received any State aid.No reduction for grant or subsidy, no State aid restrictions.
Limit on aidAid to any single project limited to €7.5m State aid.No limit.

Get in touch

If you would like us to support your R&D application please get in touch with our team of advisors. We would be more than happy to talk about your R&D projects and potential R&D claims. 

The information available on this page is of a general nature and is not intended to provide specific advice to any individuals or entities. We work hard to ensure this information is accurate at the time of publishing, although there is no guarantee that such information is accurate at the time you read this. We recommend individuals and companies seek professional advice on their circumstances and matters.