For SMEs, from 1 April 2012, the R&D tax relief claim enhancement (the enhanced deduction) was increased to 225% of the qualifying expenditure for R&D tax credits incurred. Therefore, where an SME incurs expenditure of £100,000 on qualifying R&D, it can deduct £225,000 when calculating its taxable profit, (or loss) for corporation tax purposes. As the £100,000 would already be accounted for in its accounts, the balance of £125,000 would be an additional deduction from its taxable profit, and the corporation tax saving would be £25,000 (at a corporation tax rate of 20%) – the equivalent of the company receiving 25p from HMRC for every £1 they spent on R&D activities.
From 1 April 2015, the enhanced deduction was increased further to 230% of the qualifying R&D expenditure incurred. Using the same example as above, the additional deduction is therefore increased to £130,000, and the corporation tax saving is also increased to £26,000 (at a corporation tax rate of 20%).