Calculating tax benefit

Calculating tax benefit

Quick guide to calculating the benefit of your client's R&D tax relief claim

The calculation of tax benefit from a R&D tax relief claim can be complicated. The R&D tax credit rates of relief differ between the schemes, for companies in profit and those in a loss-making position, and depending on the dates of the claim.

Current R&D tax rates of relief



To 31st March 2023
From April 1st 2023
Claim periods starting on or after 1st April 2024
SME
Enhancement rate
130%
86%
-

Tax credit rate
14.5%
10%
-

R&D Intensive SME tax credit rate
-
14.5%
-





RDEC
Tax credit rate
13%
20%
-





Merged RDEC
Tax credit rate
-
-
20%

Enhanced R&D intensive support
-
-
14.5% tax credit
86% enhancement

How to calculate the tax benefit

Profit-making SME example (SME scheme)

  • Business made profits of £250,000 for the year

  • Corporation tax (25%) due before R&D claim = £62,500

  • Business has £100,000 of eligible expenditure

  • SME enhancement rate 186%

Calculation

Profit before R&D
£250,000
Enhanced deduction*
(£186,000)
Revised profit
£164,000
Corporation tax at 25%
£41,000
Tax benefit
£21,500

* £100,000 x 186% = £186,000. However, £100,000 of costs are already included in the profit figure so only £86,000 should be deducted

Loss making SME example (Enhanced R&D intensive support)

  • Business made loss of £250,000 for the year

  • Business has £100,000 of eligible expenditure

  • Eligible expenditure is more than 30% of overall expenditure

  • SME enhancement rate 186%

  • Surrender credit 14.5% of enhanced R&D costs

Calculation

Loss before R&D
(£250,000)
Enhanced deduction*
(£86,000)
Revised loss
(£336,000)
Maximum losses available to surrender**
(£186,000)
Tax credit received
£26,970

* £100,000 x 186% = £186,000. However, £100,000 of costs are already included in the profit figure so only £86,000 should be deducted

** £100,000 x 186% = £186,000. Surrendered losses cannot exceed the enhanced expenditure.

Merged scheme example - loss-making

  • Business has £100,000 of eligible expenditure

  • Eligible expenditure is less that 30% of overall expenditure

  • Business has turnover of £500,000

  • Business made a loss before R&D of £300,000 for the year

  • Tax credit rate 20%

  • Tax rate 19%

Calculation

Turnover
£500,000
R&D Expenditure
£100,000
Other expenditure
£700,000
Profit/(Loss) before tax
(£300,000)
RDEC at 20%
£20,000
Tax charged at 19%
£3,800
RDEC credit payable
£16,200





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