The calculation of your R&D tax relief benefit depends on the company’s situation, whether it falls into the category of:-
- Profitable SME
- Loss making SME
- Large Regime – RDEC
The financial benefit to making a R&D tax relief claim can be extremely significant. Nowhere else will you find funding for the projects that you undertake at such a generous rate.
Profitable SME companies will benefit on average by a saving of 25%. If the company spent £100,000 on R&D projects in a year then its corporation tax liability would reduce by up to £25,000.
Loss Making SME’s
A loss-making SME can also benefit from a cash injection. The formulae for a loss-making company is different to the profitable company and the benefit received is a R&D Credit.
Essentially the loss-making company gives HMRC a £1 of loss in return for 14.5p. This may should a bad deal but if the loss was carried forward against future profits at a 17% tax rate the company eventually in the future would only be getting 17p for its £1 of loss. The deal doesn’t seem so bad after all.
The loss-making formulae actually works out that a benefit of c33% can be obtained. If the company spent £100,000 on R&D projects in a year then its potential R&D Credit would be £33,350.
Large Companies RDEC
Profitable and loss making large companies equaly can benefit, both potentially obtaining a R&D Credit of 9.7% of their R&D spend.
If the company spent £100,000 on R&D projects in a year then its potential R&D Credit would be £9,700.
The area of subcontractors and the inclusion of their costs within the R&D claim can be complex. SME and RDEC subcontractors have different rules and heavily depend on several aspects.