Section A

Innovate Ltd is an SME that incurred £100,000 of qualifying Research and Development (R&D) expenditure. Assuming the SME enhanced deduction rate is 86%, what is the total deduction Innovate Ltd can claim against its trading profits for this expenditure?

Answer options:

£86,000

£100,000

£186,000

£230,000

How to approach this question

Add the actual expenditure to the enhanced deduction amount (Expenditure x Enhancement Rate).

Full Answer

C.£186,000✓ Correct

Under the SME R&D scheme (using the 86% enhancement rate), a company can deduct its actual qualifying expenditure (£100,000) plus an additional enhancement of 86% of that expenditure (£86,000). The total deduction against trading profits is therefore £186,000.

Common mistakes

Selecting just the enhancement amount (£86,000) instead of the total deduction.

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