The Small and Medium sized Enterprise Scheme
Under the SME scheme, the company receives a ‘super deduction’ of 230% of the qualifying expenditure.
For example, if a company spends £75,000 on R&D it will receive a tax deduction of £172,500 at a tax rate of 19% this equates to an extra tax saving of £32,775
If the company is not currently paying tax, the enhanced expenditure can be surrendered for cash at a rate of 14.5%. By using the example above, a cash payment of £25,012 could be due. Further information on the SME scheme can be found on the SME page.
Research and Development Expenditure credit (RDEC)
The Research and Development Expenditure credit (RDEC) replaced the Large Company Scheme from 1st April 2016.
The RDEC scheme is available to any company that does not qualify for the SME scheme. The reason you may not qualify for the SME scheme could be due to the company size, or if you are a subcontractor to a large company, or if you have received certain grants.
Under the RDEC scheme a company will be able to claim a credit of 12% of the qualifying expenditure after allowing for set offs against any corporation tax liability. The credit can be used against future tax liabilities, surrendered for cash or a combination of the two. The actual value of the RDEC tax credit, after corporation tax is 9.7% of qualifying R&D expenditure. The rate was increased from 11% of 12% in the Autumn Budget of 2017 and the new rate came into effect from 1st January 2018. For a more detailed explanation of the RDEC scheme visit the Large Company page.