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 130% 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 33.35% of the money spent on R&D activities.
In the example the company has spent £20,000 in qualifying Research and Development Tax expenditure whilst incurring a £20,000 loss.
This expenditure is multiplied by 130% to give the enhanced expenditure amount which is £26,000.
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 £46,000 before tax.
The Total Effective Loss generated can then be carried Forward or Back giving the company a Corporation Tax saving of £8,740.
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 14.5% of the Total Effective Loss back as a Tax Credit of £6,670.
Frequently Asked Questions
SMEs can benefit from an enhanced rate of R&D tax credits compared to larger businesses. For a company to be regarded as an SME and qualify for this scheme it must meet the following criteria:
- Must be a UK Limited Company
- Must employ fewer than 500 people
- Have either an annual turnover of no more than £100 million or a balance sheet total not exceeding £86 million.
There is a 2 year time limit to how far back you can make a claim on incurred R&D expenditure. The date that the costs were paid must have occurred within 2 years starting from your current company year end date.
For Example - If your company tax year end date is the 30th June 2018, you can claim any qualifying R&D costs incurred going back to the 30th June 2016.
If your Research and Development projects spans multiple years we will help you to make a separate claim for each year including the respective qualifying expenditure. The total tax saving will be the same result as if the project fell into one tax year.
The amount of the SME payable R&D tax credit that a company can receive in any one year will be capped at £20,000, plus three times the company’s total PAYE and NICs liability. This measure will apply to accounting periods beginning on or after 1 April 2021.
Companies are able to make a claim for their R&D projects whether they were successful or not. The R&D Tax Relief does not discriminate between the two as it aims to encourage businesses to innovate. The scheme therefore helps businesses to mitigate some of the financial risk involved in research and development.
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To find out if your project or innovation qualifies under the R&D SME scheme and how it can help your business, get in touch for a Free, No Obligation Evaluation. Start claiming R&D Tax Credits today.
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