SME Loss Making Business

If you have spent money on qualifying innovative activities in the past two years you can reduce your company’s corporation tax bill by an extra 86% of the amount you spent on the innovation.

When a company makes a loss relating to R&D they can choose to either carry forward or carry back that loss as is normally the case with losses but they also have the opportunity to claim a cash credit of up to 18.6% of the money spent on R&D activities.

How does it work?

In the example the company has spent £17,900 in qualifying Research and Development Tax expenditure whilst incurring a £20,000 loss.

This expenditure is multiplied by 86% to give the enhanced expenditure amount which is £15,394.

The enhanced expenditure amount is then added to the company's losses of £20,000. This leaves the company with a total effective loss of £35,394 before tax.

Carrying the Loss Forward/Back

The Total Effective Loss generated can then be carried Forward or Back giving the company a Corporation Tax saving of £6,725.

Receiving a Tax Credit

If the company decides it needs the benefit of this future saving now they have the option to claim for a Tax Credit.

This allows the company to claim 10% of the Total Effective Loss back as a Tax Credit of £3,539.

There is an additional rate for R&D intensive businesses that allows the company to instead claim 14.5% of the Total Effective Loss back as a Tax Credit of £5,132.