From 1st April 2021, the maximum amount of payable R&D tax credit which an SME (a Small or Medium Enterprise – which is defined as no more than 500 employees and either turnover of no more than €100m, or balance sheet total of no more than €86m) can claim is £20,000 plus 300% of its total Pay As You Earn tax (PAYE) and National Insurance Contributions (NICs) liability for the period.

This is a toughening of the rules.  However, a company is exempt from the cap if:

  • its employees are creating, preparing to create or managing Intellectual Property (IP) AND
  • it does not spend more than 15% of its qualifying R&D expenditure on subcontracting R&D to, or the provision of externally provided workers (EPWs) by, connected persons.

The SME R&D tax credit still allows loss-making companies to claim a tax credit worth up to 14.5% of the R&D element of their surrendered losses and receive an immediate cash-flow benefit.

For these purposes, IP includes: any patent, trademark, registered design, copyright, design right, performer’s right or plant breeder’s right and, as was announced in the 2021 Budget, the definition of IP has been widened to include ‘know-how’ and ‘trade secrets’.

R&D has a specific statutory definition for the purposes of R&D tax relief. To qualify the company must be carrying out research and development work in the field of science or technology. This is not just for ‘white coat’ scientific research but also for ‘brown coat’ development work in design and engineering that involves overcoming difficult technological problems. This can include creating new processes, products or services, making appreciable improvements to existing ones and even using science and technology to duplicate existing processes, products and services in a new way. But pure product development in itself does not qualify.

Useful links: and