Enhanced support for R&D intensive SMEs exists because the ordinary rate is worth very little to a company with no profit to shelter. A loss-making company can surrender its loss for a payable credit, and where the company is R&D intensive that credit is paid at a materially higher rate. The whole question is what counts as intensive.
The test is a ratio of spending
Intensity is measured by comparing the company's qualifying R&D expenditure with its total expenditure for the period, not with its turnover and not with its headcount. That is deliberate: a pre-revenue company with no sales at all can be intensely R&D-focused, and a turnover test would exclude exactly the companies the relief is aimed at. Where the company is part of a group, the test looks at the group rather than at the single company, which is what catches structures that put the development in one entity.
What it is worth
Under the SME scheme the payable tax credit is worth up to 10% of the surrenderable loss, and up to 14.5% of the surrenderable loss where the company meets the intensity condition for expenditure on or after 1 April 2023. That difference is the whole of the enhanced support: nearly half as much again on the same loss, paid in cash to a company that by definition has none. For a loss-making development company it is frequently the largest single receipt of the year.
Why it is worth measuring before the year end
Intensity is a ratio, and a ratio can be moved by the denominator as well as the numerator. A large one-off cost in the period, unrelated to R&D, can take a genuinely research-focused company below the threshold. That is not something to engineer, but it is something to know about before the year closes rather than after, because at that point the only options left are which period costs fall into, and those are decided by accounting rules rather than by preference.
Questions people ask about r&d intensive smes
What makes an SME R&D intensive?
The ratio of qualifying R&D expenditure to total expenditure for the period, measured across the group where the company is in one. It is not a turnover or headcount test.
What is the enhanced payable credit worth?
Up to 14.5% of the surrenderable loss where the intensity condition is met for expenditure on or after 1 April 2023, against up to 10% otherwise.
Does a pre-revenue company qualify?
It can. The test compares R&D spending with total spending rather than with turnover, precisely so that a company with no sales is not excluded.