SME R&D Tax Relief
Written and reviewed by the R&D Tax Accountants editorial team. Last reviewed 8 August 2026.
SME R&D tax relief is the scheme most smaller UK companies claimed under until the merger. It has not disappeared: it still governs every accounting period that began before 1 April 2024, which means it is still the live scheme for claims being prepared and amended now.
It works by enhancing the deduction rather than by giving a credit. Qualifying costs are deducted at more than they cost, and where that produces a loss the company can surrender the loss for cash.
Which Periods Are Still on the SME Scheme
Accounting periods beginning before 1 April 2024 remain on the SME scheme. Periods beginning on or after that date fall under the merged R&D expenditure credit, or under Enhanced R&D Intensive Support for loss-making intensive SMEs.
Because the claim deadline runs to 24 months from the last day of the period of account, SME scheme claims will still be validly made into 2026 and beyond for older periods. The scheme is historic in the sense that no new period enters it, not in the sense that it can be ignored.
The SME Size Thresholds
A company qualifies as an SME for these purposes with fewer than 500 staff and either turnover under 100 million euros or a balance sheet under 86 million euros. The thresholds are expressed in euros in HMRC's guidance, which is a legacy of their origin rather than an oversight.
The test is not applied to the company in isolation. Linked and partner enterprises are taken into account, so a small company owned by a large group is generally not an SME for R&D purposes and claims on the large company basis instead. Where there is any group structure or significant outside shareholding, the size test is worth working through before the computation rather than after it.
The Enhancement and the Payable Credit
The company deducts an extra 86% of its qualifying costs from trading profit, so 186% of the cost is deducted in total. For a profitable company that is the whole mechanism: the enhanced deduction reduces taxable profit and therefore the Corporation Tax bill.
Where the enhancement creates or increases a trading loss, the company can surrender some or all of that loss for a payable tax credit. The rate is 10% of the amount surrendered, rising to 14.5% where the company meets the intensity condition on expenditure incurred on or after 1 April 2023.
The credit is subject to the PAYE and NIC cap, which is £20,000 plus 300% of the company's relevant PAYE and National Insurance contributions liabilities for the period, unless the company is exempt. The PAYE cap page covers how that works in practice.
Preparing an Older SME Claim Now
Two things catch companies claiming late for an older period. The first is that a period beginning on or after 1 April 2023 needed a claim notification form if it was a first or lapsed claim, and that window has usually closed. The second is that an additional information form is required regardless of how old the period is.
HMRC's guidance on the scheme, including the size thresholds and the rates, is published as R&D tax relief for small and medium-sized enterprises. Companies weighing relief against grant funding for the same project should look at Innovate UK, because grant funding can affect which scheme applies.