Choosing a suitable government R&D tax credit scheme can be a minefield. TS Partners is here to clear up the differences between SME and RDEC.
The main difference between both schemes is the size of your company. The SME R&D tax credit scheme is for, as the name suggests, small and medium-sized enterprises. In comparison, RDEC (Research and Development Expenditure Credit) is aimed at larger businesses.
HMRC treats each scheme differently. To work out which is the appropriate scheme for you, we focus on three main:
- Gross assets
- Number of staff
- Annual turnover
SME Tax Credit Scheme
To qualify for the SME R&D tax relief scheme, your business must:
- Employe under 500 employees
- Have an annual turnover of less than €100m
- Have a balance sheet of less than €86m
As we illustrate further in the article, this scheme is the more generous of the two schemes. Your business could qualify for R&D tax credits, regardless of the sector, so long as you can prove time and money was invested into research and development. Your project doesn’t have to be successful either, as the tax relief is aimed to reward innovation and not success.
The Research and Development Expenditure Credit (RDEC)
The RDEC scheme, also known as Above-the-Line, was introduced in the Finance Act 2013. The RDEC aims to allow larger companies with no Corporate Tax liability to benefit from a lump sum of cash or a tax reduction for their R&D activities. The most significant difference between both schemes is that RDEC R&D tax credits can be claimed as “above-the-line” taxable income instead of below-the-line benefit.
Companies who qualify for RDEC have:
- Over 500 members of staff
- An annual turnover of over €100m
- A balance sheet of €86m or more
Can SMEs Claim the RDEC Scheme?
There are instances where SMEs can claim the RDEC scheme. This option will only be available for SMEs if their R&D project doesn’t qualify for the R&D tax credit scheme for the following reasons:
- Your company received state aid or a grant to help fund your R&D project.
- Your company is subcontracted by a larger business to perform the R&D work.
If you think your SME doesn’t qualify for the R&D tax credit scheme, then check your eligibility for RDEC. However, the best way to find out which government tax credit scheme applies to you is by asking our Experts.
What Level of Tax Relief Does Each Scheme Offer?
The R&D Tax Credit Scheme for SMEs is the most generous of the two schemes. However, the scale of operations for larger companies means that, although the RDEC offers a lower rate, these companies still get substantial amounts of tax relief.
R&D Tax Credits:
- Allows SMEs to take off an extra 130% of qualifying R&D costs from their annual profit, adding to a total of 230% reduction.
- Tax credits can be claimed for a loss, too, with a value of up to 14.5% for the surrenderable loss.
- Offers 13% of qualifying R&D expenditure back.
- 11p for every £1 spent on R&D.
- Paid in either a lump sum or offset your corporation tax liability.
- It can be shown as income in your account, as it can be written as “above-the-line”.
Other Differences Between the SME and RDEC Schemes
While both schemes are different, they are the same regarding what qualifies as an R&D project. The definition of what R&D activities qualify is the same, regardless of which scheme you are looking to claim.
Besides different relief rates available, each scheme has different qualifying costs.
Under the SME R&D tax relief scheme, you can include up to 65% of subcontractor cost, so long as the subcontractor performed the work within the UK. In contrast, the RDEC has strict restrictions on what subcontractor costs you can include in your claim. You may include charity or scientific research organisation costs, but not other subcontractor costs.
One of the main advantages of RDEC is that your business can still qualify for tax relief even if you receive government funding for the project. However, SMEs claiming under the R&D Tax Credit scheme can’t claim if they’ve received government funding.
We hope this guide helps you identify which scheme your business qualifies for, but if you are unsure about any step of the R&D tax credit claiming process, don’t hesitate to get in touch. Our experts can guide and assist you on every step of the process, from identifying if your project qualifies to submitting the claim to HMRC on your behalf.
On 23rd June, HM Revenue & Customs released its data concerning the ‘tax gap’ for the 2020 to 2021 tax year. The non-ministerial department said that the estimated ‘tax gap’ – defined as…
With Thursday 16th June having been National Freelancers Day, it is fascinating to see the recently released data indicating that many firms have called upon freelance skills to an even greater extent…
As a business owner, you will naturally want to make the most of all available resources and sources of support to better your firm’s survival and growth prospects. That’s just one reason why you …
Farmers in England can apply for between £25,000 and £300,000 in funding to help promote their business and increase their produce’s value. The funding is available through the new £30M Farmi…
To say that recent months have presented stern challenges for businesses would be quite the understatement – and recent research has shed greater light on precisely what keeps small-business owners …
The Plymouth Workplace Travel Grants are a part of Plymouth City Council’s Productive Plymouth Programme to promote sustainable transport measures. The grants are funded by the Department for Tr…
There was, unsurprisingly, further bad news for ‘UK plc’ in the latest Government figures, with the Office for National Statistics (ONS) revealing that the economy declined by a larger than antici…
UK registered organisations can apply for a share of up to £12 million for creative, new and improved sustainable maritime projects. This funding is from The Department for Transport. Entries open: W…
Escalating costs continue to be a matter pressing on the minds of individuals and businesses alike. However, while the former has now received some much-needed help with their energy bills from Chance…
The Forestry Commission open their Tree Production Capital Grants, giving businesses within the sector apply for a share of £8.8 million in funding. Tree seed and sapling suppliers can apply for a sh…
In partnership with UK Research & Innovation, the Department for Environment, Food & Rural Affairs has launched a second round of the Farming Innovation Programme. The programme supports colla…
The UK Government’s decision to put up Corporation Tax from 19% to 25%, taking effect from next April, will cause the country to fall 16 places on the global ‘league table’ for corporate tax, fr…
Marine Management Organisation Relaunch the Fisheries and Seafood Scheme The Marine Management Organisation (MMO) has relaunched the Fisheries and Seafood Scheme to safeguard the long-term sustainabil…
With the latest State Opening of Parliament taking place amid considerable economic uncertainly brought on by such factors as escalating inflation, cost-of-living pressures, and the continuing …
With the last year or so having seen the widespread removal of coronavirus restrictions, many small-to-medium-sized enterprises (SMEs) in the UK might have reasonably hoped that 2022 would be a…
Independent shops have written to the UK’s Chancellor of the Exchequer, Rishi Sunak, expressing their openness to the notion of an Online Sales Tax (OST), as a potential solution for funding a major…
While the cost-of-living crisis has long been far from an abstract concept for many people – the impacts being very much felt in their living standards – we are now starting to see many of those i…
Key observers from across UK business have given a largely positive reception to the Government’s announcement that it will not put in place additional checks on goods arriving in the UK from the Eu…