What’s the difference between SME and RDEC Schemes?

22 October 2021 Tom Whitworth View all News

There are two R&D Tax Relief schemes currently available to UK companies – each offers a generous incentive for innovative companies. These are the SME (Small and medium-sized enterprise) scheme and RDEC (R&D Expenditure Credit). But what is the difference between the two?

Scheme Which companies qualify? Benefit
SME Companies with fewer than 500 employees, with either less than €100m turnover or a balance sheet total of less than €86m. Saving of around 25% of qualifying R&D costs.
RDEC Companies which do not meet the SME scheme criteria. Effective Corporation Tax rate of 10.53%

 

What is the SME scheme?

As the name suggests, the SME scheme is for small and medium-sized enterprises. This scheme can see SMEs obtain tax relief equal to around 25% of qualifying R&D costs.

This scheme applies for companies who meet the criteria of SME and is the most generous of the two tax breaks.

An SME must have fewer than 500 employees and must also meet one of the following two conditions:

  • Less than €100m turnover, or
  • A balance sheet total of less than €86m, including partner and worldwide linked enterprises.

SMEs can also deduct an extra 130% of their qualifying R&D costs from their taxable profits, in addition to the normal 100% deduction. This makes a total deduction of 230%.

Last but not least, SMEs can claim tax credits if the company makes a loss – this tax credit is worth up to 14.5% of surrenderable losses.

What is the RDEC scheme?

RDEC is the Research & Development Expenditure Credit, which also grants Corporation Tax relief on a company’s qualifying costs when innovating. This relief is available to business who do not meet the SME scheme criteria outlined above.

Previously known as the “Large Company Scheme”, RDEC was introduced in 2016 and is worth 13% of qualifying R&D expenditure. When the 19% rate of Corporation Tax is applied to this credit, it gives companies an effective Corporation Tax rate of 10.53%.

How do I know which to apply for?

Any UK business whose activities qualify for R&D Tax Reliefs can apply, and the SME and RDEC schemes cater for both. All you need to know is whether your company is classified as an SME – the criteria listed above outlines the criteria. If you are unsure, a consultation with a specialist is recommended.

How can Radius help?

The Radius team has worked with a huge range of businesses, big and small. We have helped both SMEs and non-SMEs claim R&D Tax Relief, and our team will be more than happy to advise you on which scheme you qualify for.

You can check your eligibility yourself with our free R&D eligibility checklist, or if you would rather speak to someone, you can book a free 30-minute consultation with our team.

What should I read next?

Our website is full of helpful guidance, case studies and more important information relating to innovation taxes, including R&D Tax Credits and Patent Box.

 

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