Can I claim R&D tax relief if I’m a loss-making company?

The R&D tax credit claim process is evolving for companies, including loss-making ones. For accounting periods before April 1, 2024, loss-making companies use the SME scheme. For accounting periods on or after 1 April 2024, the SME and RDEC schemes will merge into a single RDEC scheme, running alongside Enhanced R&D Intensive Support for R&D-intensive SMEs.

Loss-making companies under Enhanced R&D Intensive SME Support (ERIS) have the opportunity to claim up to 27% of qualifying expenditure. For those loss-making SMEs not eligible for ERIS, they will receive 18.6% before 1 April 2024, decreasing to 16.2% post-merger. Until April 2024, profit-making companies may receive up to 21.5% back, decreasing to 15% post-merger.

Under the RDEC scheme, a fixed return of 20% is granted, irrespective of your financial situation. It is important to note that, unlike the SME scheme or ERIS, the return received through the RDEC scheme is considered taxable income. As a result, companies typically receive a net return of 15% after taxation. For more information on the RDEC scheme, look at our RDEC scheme guide.

The rates for loss-making companies have seen significant shifts in recent years. The adjustments were made in April 2023 and have been revised once more as of April 2024 due to the merging of the scheme. If you are an R&D-intensive loss-making SME leveraging the new ERIS scheme or a loss-making company claiming through the new merged RDEC scheme, your claim will have changed.

Whether you know your previous claim value or not, our new calculator provides an estimate and shows how these changes will affect your claim for accounting periods in 2023 and from 1 April 2024—try it now to get an accurate view of your potential claim value.

What is an R&D-intensive SME?

An R&D-intensive SME is a loss-making SME with a qualifying R&D expenditure that is at least 40% of its total expenditure (30% for accounting periods on or after 1 April 2024).

How much will an R&D-intensive SME receive?

An R&D-intensive SME can claim a higher payable R&D tax credit rate of 14.5% (rather than the reduced 10%).

This means that loss-making R&D-intensive SMEs will receive a cash credit of £27 for every £100 spent on R&D expenditure instead of the reduced rate of £18.60 available to non-R&D-intensive SMEs.

How will this be delivered?

For accounting periods up to 1 April 2024, as part of the existing SME scheme. Following this, it will be called the ERIS scheme, which will run parallel to the merged RDEC scheme.

If you are a loss-making company, how you will receive the SME R&D tax credit will also be affected. Whereas profit-making companies receive a deduction from their Corporation Tax bill, loss-making companies can receive a partial or full cash credit for their R&D expenditure.

Alternatively, loss-making companies can choose to carry forward their losses to a future profitable year. This may make sense if your future profitability is predictable, as the return can be higher than if you receive a cash credit; however, for most loss-making companies, immediate cash credit is preferred. Returns from carried forward losses can reach 20% of the enhanced R&D expenditure, whereas the cash credit is delivered at a rate of 14.5%. Choosing to take the immediate cash credit, rather than carrying the loss onto your future tax bill, is called “Surrendering the Loss“.

For more information about how your R&D tax credit is calculated, we recommend looking over our guide to how much you can claim. Otherwise, get in touch with one of our team, and they will be able to advise you free of charge.