Hi, I have an R&D company making a loss and claiming R&D tax credits.
By Example,
Losses Before R&D Relief £20000
R&D Expenditure £5000
Enhanced Losses (125% x £5000) = £6250
Adjusted Losses £26250
The Tax Credit would be 14.5% x £11250 (i.e. limited to R&D 225% enhancement) ~ £1631
Now the question. Is the outcome
(a) Surrender all losses for £1631 Tax Credit
OR,
(b) Surrender £11250 losses for R&D Tax Credit AND carry forward losses of £15,000
Best Regards, Richard
Replies (8)
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Neither
Surrender and receive tax credit and then carry forward loss of £8,750 being the £20,000 loss less tax credit surrendered of £11,250
Assuming that is that you cannot potentially relieve any of the trading loss, because the actual surrenderable amount is the lower of unrelieved trading loss and 225% of qualifying R&D expenditure.
Not quite correct
The total loss is £26,250. Anything between £0 and £11,250 may be surrendered for payable credit. The balance (£26,250 less amount surrendered) is carried forward (or back, or sideways).
EDIT - assuming that this is related to an earlier question, I'm making no judgement on whether the company is actually entitled to surrender losses for an SME credit.
To be clear
The fact that the company is an SME is not conclusive as to the amount, or manner, of the relief.
That wasn't the point that I was making
The point that I was making is that size alone does not determine whether a company is entitled to SME relief. The company may well be an SME - that doesn't necessarily mean that it is entitled to an SME tax credit. (You said in an earlier post that you were satisfied that such relief is available - I'll take your word on that.)
No HMRC examples
But I could give you plenty of my own, all accepted by HMRC without question. I guess that HMRC think that in most cases a loss-making R&D company would be unable to immediately otherwise use any of the losses so would always prefer to surrender the whole lot. That is the case with most companies in my experience, but I have - as I say - also seen many where there were prior period profits to relieve.