Qualifying R&D expenditure incurred by small and medium sized enterprises (SMEs) is enhanced by 225%, so as to create a super-deduction for corporation tax purposes.
Where a SME is loss making it can surrender the lower of the enhanced R&D expenditure and its trading loss for a cash tax credit of 11% of the surrendered amount (CTA 2009, s 1058).
This is attractive where the company cannot use the enhanced deduction against other taxable profits.
The rate of cash tax credit payable to loss making SMEs will be increased to 14.5% for qualifying expenditure incurred on or after 1 April 2014.
The increase in the rate of cash tax credit to 14.5% will make surrendering losses more attractive to SMEs who are loss making and unable to make use of the enhanced corporation deductions in another way.