Yes, you can claim R&D tax credits if you’re a loss-making company. In fact, applying for the SME R&D tax credit as a loss-making company is the most lucrative way to access the scheme. Loss-making companies applying through the SME scheme can claim back up to 33% of their qualifying expenditure, while profit-making companies only receive back up to 25% of their expenditure.
For those applying through the RDEC scheme, the return is always 13% regardless of your financial position. However, unlike the SME scheme, the RDEC return is taxable income so typically returns 11% to companies after tax. For more information on the RDEC scheme, look at our RDEC scheme guide.
These variances are clearly designed by HMRC to support smaller innovative businesses who may be experiencing losses while developing a product with expected future commercial gains.
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 the 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.
