R&D Tax Credit and Losses

R&D Tax Credit and Losses

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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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By martinscutt
16th Feb 2015 21:20

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.

 

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By User deleted
16th Feb 2015 21:52

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.

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By richardjd
16th Feb 2015 21:56

agree

I agree with BKD. This is for an SME, the bottom line after applying the relief is a total loss of £26,250. I also agree after reading through HMRC that anything between £0 and £11,250 may be surrendered, it does not have to be the full amount. It makes logical sense the balance is carried forward, would just be nice to find an HMRC example

 

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By User deleted
16th Feb 2015 22:06

To be clear

The fact that the company is an SME is not conclusive as to the amount, or manner, of the relief.

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By richardjd
16th Feb 2015 22:17

I was just adding in case people start getting mixed up with the Large Company Scheme which is "above the line". I've seen previous R&D tax relief posts where Large and SME get mixed up, i.e in this case the tax credit IS NOT taxable profit...

 

 

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By User deleted
16th Feb 2015 22:37

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.)

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By richardjd
17th Feb 2015 09:09

disregarding a judgement on whether there is a case for entitlement to R&D tax relief, has anyone come across a HMRC example of a loss making SME where it shows surrender for a tax credit and losses also being carried forward? All the examples online always balance to zero after the tax credit.

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By User deleted
17th Feb 2015 14:43

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.

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