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Can I claim R&D tax credits if I’m a loss-making company?

Yes, you can claim R&D tax credits if you’re a loss-making company. Loss-making companies applying through the SME scheme for accounting periods prior to April 2023 can claim up to 33% of their qualifying expenditure. In contrast, profit-making companies can only receive up to 25% back. From April 2023 onwards, the percentage allocated to loss-making companies will see a substantial decrease of 44.2%, lowering it to 18.6%. Similarly, the percentage allotted to profit-making companies has also been reduced from 25% to 22%. To delve deeper into these changes, take a moment to peruse our comprehensive guide on the SME scheme changes.

Under the RDEC scheme, for claims submitted prior to April 2023, a fixed return of 13% was granted, irrespective of your financial situation. However, for claims made in accounting periods subsequent to April 2023, the RDEC scheme offers a higher return of 20%.

It is important to note that, unlike the SME scheme, the return received through the RDEC scheme is considered taxable income. As a result, for claims made before April 2023, companies typically receive a net return of 11% after taxation. On the other hand, for claims made after April 2023, companies typically receive a net return of 15% after taxation. For more information on the RDEC scheme, look at our RDEC scheme guide.

 

Additional tax relief for R&D-intensive loss making SMEs

Although the SME scheme’s generosity for claims submitted on or after April 2023 has decreased, R&D-intensive SMEs have a glimmer of hope. In the Spring Budget, the government unveiled plans to introduce a higher rate of relief specifically tailored for these innovative businesses.

What is an R&D-intensive SME?

An R&D-intensive SME is a company with qualifying R&D expenditure that is at least 40% of its total expenditure.

How much will an R&D-intensive SME receive?

An R&D-intensive SME is able to claim a higher payable R&D tax credit rate of 14.5% (rather than the reduced 10%).

This means that loss-making R&D-intensive SMEs will receive a cash credit of £27 for every £100 spent on R&D expenditure instead of the reduced rate of £18.60 available to non-R&D-intensive SMEs.

How will this be delivered?

As part of the existing SME scheme, companies will be able to indicate if they are claiming as R&D-intensive using a new digital ‘Additional Information’ form. The introduction of this form is set to take effect on or after 1 August 2023.

How loss-making companies receive their R&D credit

If you are a loss-making company, how you will receive the SME R&D tax credit will also be affected. Whereas profit-making companies receive a deduction from their Corporation Tax bill, loss-making companies can receive a partial or full cash credit for their R&D expenditure.

Alternatively, loss-making companies can choose to carry forward their losses to a future profitable year. This may make sense if your future profitability is predictable, as the return can be higher than if you receive a cash credit; however, for most loss-making companies, immediate cash credit is preferred. Returns from carried forward losses can reach 20% of the enhanced R&D expenditure, whereas the cash credit is delivered at a rate of 14.5%. Choosing to take the immediate cash credit, rather than carrying the loss onto your future tax bill, is called “Surrendering the Loss“.

For more information about how your R&D tax credit is calculated, we recommend looking over our guide to how much you can claim. Otherwise, get in touch with one of our team, and they will be able to advise you free of charge.

EmpoweRD's Ultimate R&D Tax Credits Guide

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Master the intricacies of the R&D Tax Credit scheme

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