R&D Tax Credits | How will I receive payment?
The form your R&D tax credit benefit takes also varies depending on whether you are using the SME R&D tax credit scheme, or RDEC.
Under the SME scheme, the R&D tax credit you receive reduces your taxable profits. If you are loss-making, in some cases you can claim a cash credit.
How your R&D tax credit is paid if you use the SME R&D tax credit scheme
If you use the SME R&D tax credit scheme here are four possibilities for how you could receive your benefit.
A Corporation Tax saving
If you make your R&D tax credit claim in the same year that you file your Corporation Tax return, you might receive R&D corporation tax relief in the form of a reduction. To reduce your corporation tax bill in this way, you would need to be profit-making. Your R&D tax credit claim will then either reduce or eliminate your corporation tax liability.
A cash rebate
R&D tax credits can be claimed retrospectively for the previous two accounting periods. If you make a claim for a period in which you have already paid your corporation tax, your company tax return is amended and HMRC will issue you with a repayment.
Loss reliefs
If you are loss-making after your R&D tax credit claim, you can elect to carry back the R&D enhanced loss to the prior year if you were previously profitable. Alternatively, you can carry it forward and offset it against future profits, or surrender it for group relief. Loss carry-backs and group relief can generate an immediate tax benefit in the form of a cash rebate for tax paid or corporation tax savings.
For loss carry-forwards, if cash flow is not such a concern to you, this option will often deliver better value in the future, compared to a cash credit. However, an immediate cash injection is often difficult to ignore when your future profitability is unknown.
A cash credit
This is the alternative for a loss-making company. You can choose to receive a cash payment from HMRC, in exchange for the surrender of your R&D enhanced losses. This option is useful for companies who need a boost to cash flow, and it can be worth up to 33p for every £1 spent on R&D.
To maximise your R&D claim, please contact us.