Part 3 | R&D Tax Credit Calculation
Following on from our last blog we continue this week, explaining how to calculate your R&D Tax Credit Claim for a loss-making company.
R&D tax credit calculation for loss-making SMEs
Loss-making SMEs can secure cash benefit from a successful claim, they also have the option of not surrendering the R&D loss but rather carrying the loss either forwards or backwards against profits.
How it works:
Calculate your QE using the list above. This will be the amount that you are declaring as being spent on qualifying R&D.
Enhance your QE by multiplying by 130%; as the company is loss-making, their losses will increase.
At this point, there are two routes you could take, to either cash in your losses or carry them forward.
Cash in or surrender losses – this is calculated as your revised loss for the year or 230% of your QE (whichever is lower) and is surrendered to HMRC for a cash tax credit at a rate of 14.5%.
Carry forward losses – this is an alternative to cashing in and means that the losses can be carried forward and offset against future taxable profit.
Example calculation:
SME #2 made a (£300,000) loss for the year
Qualifying expenditure: £100,000 (already in accounts as expenditure)
Corporation Tax before R&D tax credit claim: £0
£100,000 x 130% = £130,000 (uplift)
(£300,000) – £130,000 = (£430,000) (loss after deducting profit)
£100,000 x 230% = £230,000 (maximum losses to surrender to HMRC)
The company can either carry the additional loss forward to be offset against future taxable profits; or the lower of 230% of qualifying expenditure or revised loss for the period can be surrendered to HMRC in exchange for a cash tax credit @ 14.5%.
If losses were surrendered, SME #2 would receive:
£230,000 x 14.5% = £33,350
£33,350 approx. 33% saving from R&D tax credits and carry forward (£200,000) to next year
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.