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HMRC internal manual

Corporate Intangibles Research and Development Manual

HM Revenue & Customs
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R&D tax relief: SME scheme: overview

The original R&D tax relief scheme introduced in FA00 (now in CTA09/Chapter 13) is aimed only at companies that are SMEs. The definition of such enterprises is dealt with fromCIRD91000 onwards. The definition is not exclusive to companies, although the relief is only available to those within the scope of corporation tax. A large company for the purposes of the large company scheme is one that does not meet the definition of a small or medium enterprise.

The SME R&D tax relief scheme

In essence, SME companies incurring R&D expenditure within the rules of the scheme CIRD90100 can obtain enhanced deductions from their taxable profits. The rate of enhancement will depend upon when the expenditure is incurred. From 1 April 2015 expenditure is enhanced by 130%.


If incurred was incurred up to and including 31 July 2008 expenditure is enhanced at a rate of 50%, if incurred on or after 1 August 2008 it is enhanced at a rate of 75%. From 1 April 2011 expenditure is enhanced by 100% and from 1 April 2012 by 125%.


If companies are unable to use any tax losses resulting from this enhanced deduction, then there are provisions whereby they may be able to surrender those losses for a payable tax credit CIRD90500.


The payable tax credits are an amount of up to 14.5% of the surrenderable loss in respect of expenditure incurred on or after 1 April 2014.

For expenditure incurred on or after 1 April 2000, the rate was 16%, or 14% in respect of expenditure incurred on or after 1 August 2008, or 12.5% on or after 1 April 2011 and 11% on or after 1 April 2012 of the surrenderable loss.

For accounting periods ending before 1 April 2012, there are limits on the amount of payable credit linked to the PAYE and NIC position of the company. These limits do not apply for accounting periods ending on or after 1 April 2012.

The concept of an SME is a European one, and we have to apply it in a way that complies with European rules on unlawful State Aids, in order to avoid breaching these rules.

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Commencement Dates

Because of its status as a State Aid changes to the SME R&D regime have to be notified to, and approved by the EU. They cannot come into force until approval is given. For that reason, the commencement dates for new measures (such as the extension of qualifying expenditure to include payments for externally provided workers CIRD84000) may differ between the SME and large company schemes, as the large company changes can be introduced without waiting for EU approval. The BIS website contains further information and links to relevant European documents.

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The large company scheme and SMEs

In certain circumstances companies that are barred from making claims under the rules of the SME scheme can instead claim the particular expenditure as eligible within the large company scheme. See CIRD81670 for subsidised expenditure and CIRD89500 for large company R&D subcontracted to an SME.

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Transitions from SME to large company

When a company changes its status between SME and large company, there are provisions that may delay a change in its tax treatment. See CIRD92000.

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Insurance companies

An insurance company that carries on life assurance business as defined by ICTA88/S431 (2) and qualifies as an SME can obtain relief for R&D expenditure against non-trading income under the large company scheme. See CIRD89600. It can claim under the normal SME scheme rules for R&D expenditure set against trading income.

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Operation of scheme and more detailed rules

This is dealt with from CIRD90100 onwards.