Example 1: Profitable SME
A qualifying SME incurs qualifying R&D expenditure during the year to 31 March 2016 of £100,000.
As a profitable company it can claim £230,000 as a deduction in respect of its R&D expenditure. This will reduce the corporation tax liability by £46,000 (based on 20% rate). The company therefore receives an effective relief on the expenditure of 46%.
Example 2: Loss making SME
If the SME above were loss making, the £230,000 attributable to the R&D expenditure can either be carried forward for relief against future trading profits or converted into a payable R&D tax credit. The rate of conversation is currently set at 14.5%, which would generate a payment to the company of £33,500 (£230,000 x 14.5%), which equates to 33.35% of the original expenditure.