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R & D Tax Relief

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