How do you proceed with your R&D tax claim?

If this is your first time making an R&D tax claim, it’s a good idea to do some homework to find out the benefits your business can get from the scheme. As an example, we’re going to do some guidance carrying forward a claim for businesses that fall under the SME regime.

The scheme

To refresh the memory a bit, let’s do a quick recap of what makes companies apply under the SME regime. They must have fewer than 500 employees, and the annual turnover has to be of less than €100 million or a balance sheet that goes under €86 million. Additional to this, if more than 25% of their share capital or voting rights are held by another entity, the claim falls under the Large Company regime.

The benefits of an R&D claim

Under the SME regime, R&D tax claims helps reduce the taxable profits or increases the taxable losses of an organisation. So the company can, for example, increase pre-tax loss to benefit from this claim.

If a claim is successful, relief can come in the form of:

  • Corporate tax rebate
  • An enhanced tax loss that is retroactive, which means it can be carried back one year or forward against profits.
  • A payable cash credit

What if I’m operating at a loss?

If your business is loss making, you can: surrender your tax relief so you can get immediate repayment, or, and this can be more beneficial, carry the loss back one year or forward indefinitely. Some profitable businesses can also have tax losses when you apply the enhanced rate of relief. For example, say we have a business that has a taxable profit of £20,000 and has a qualifying R&D expenditure of £50,000:

£50,000 x 130% = a further £65,000 deduction

£20,000 – £65,000 = £45,000 loss

You can attribute the total loss to the tax relief, which can come in the form of a payable credit of £6,525 (£45,000 x 14.5%) or a loss that can be carried back or forward to offset against the profit. Because of the Corporate Tax rate being at 19%, the loss relief could go for £8,550 (£45,000 x 19%).

As a friendly reminder, if you ever make an R&D tax credit claim, having a specialist on your side is always a good idea, so that the chances of a mistake happening go down. M3 partners can help you out with that; we give advice to businesses in diverse sectors of the industry so that they follow the best route if they’re eligible for R&D tax credits. Contact us today.