OVERVIEW
R & D tax relief allows SME companies to either:
- Deduct an extra 130% of their qualifying R & D costs from their profit, which is in addition to the normal 100% deduction
- Claim a tax credit if the company is loss making, worth up to 14.50% of the surrenderable loss
COSTS YOU CAN CLAIM
Employee costs (including Employers NIC/Pension)
Subcontractor costs
Software
Consumables
EXAMPLE – PROFITABLE COMPANY
Profit before tax (prior to R & D Claim) £200,000
Corporation tax @ 19% £38,000
Following the preparation of a R & D claim, it is calculated that there are R & D costs of £100,000. A further enhancement of 130% is available on these costs so the revised corporation tax due is as follows:
Profit before tax £200,000
Less: R & D enhanced expenditure (£130,000)
Revised profit before tax £70,000
Corporation tax @ 19% £13,300
Corporation tax saving £24,700
EXAMPLE – LOSS MAKING COMPANY
Loss before tax £200,000
Add R & D enhanced expenditure £130,000
Adjusted loss before tax £330,000
The surrenderable loss is the lower of the following:
- the amount of the unrelieved trading loss sustained in that period (£330,000); and
- 230% of the related qualifying R&D expenditure (£100,000 x 230% = £230,000)
The lower of these amounts (£230,000) is multiplied by 14.50% to result in a tax refund due of £33,350
SUBMISSION TO HMRC
You are required to provide HMRC with a copy of your calculations and a report detailing how the R & D project:
- looked for an advance in science or technology and aimed to achieve this advance
- had to overcome scientific or technological uncertainty
- overcame this uncertainty
- could not easily be worked out by a professional in the field
