Part 2 | R&D Tax Credit Calculation
How are R&D tax credits calculated?
Following on from our last blog we continue this week, explaining how to calculate your R&D Tax Credit Claim.
R&D tax credit calculation for profit-making SMEs
In general, profitable SMEs can benefit from average savings of 25%, so if a company were to spend £100,000 on R&D projects and make an R&D tax credit claim they would be able to reduce their Corporation Tax (CT) by up to £25,000, ultimately deducting 130% of the qualifying costs from their yearly profit in addition to the normal 100%; a total 230% saving.
How it works:
Calculate your qualifying expenditure (QE) using the list on our previous blog. This will be the amount that you are declaring as being spent on qualifying R&D.
Enhance your QE by multiplying by 130%; artificially increasing your R&D expense for the year and reducing your taxable profit.
Subtract your original CT amount from your new rate to reveal your CT saving.
Example calculation:
SME #1 made profits of £400,000 for the year
Qualifying expenditure: £100,000 (already in accounts as expenditure)
Corporation Tax before R&D tax credit claim: £76,000
£100,000 x 130% = £130,000 (uplift)
£400,000 – £130,000 = £270,000 (revised profit)
£270, 000 x 19% = £51,300 (Corporation Tax)
£76, 000 – £51,300 = £24,700 (Corporation Tax saving)
£24,700 approx. 25% saving from R&D tax credits
To make life easier for you, why not just use our R&D tax credit calculator.
To unlock a higher level of rebate, you do need a specialist to look at this for you. There are plenty of software applications out there at the moment and even accountants are saying they can complete this work.
Well, they may be able to, but they will not be able to maximise your claim and neither will the software. I generally go by the rule; you get what you pay for. There are always corners we can cut, but there is then generally a price to pay.
So to maximise your R&D claim, please contact us.