R&D tax credits

R&D tax credits

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Could someone please clarify the rules for the R&D tax credit system please.  I understand that pre 1st April 2014 the claim was 11% and post 1st April 2014 it is 14.5% but 14.5% of what exactly?  Is it the R&D expenditure (in which case, is it the original R&D cost or the enhanced one)?  Is it maybe the tax loss?  Or maybe the lower of the 2?

For example, if a company has taxable profits of £50k pre R&D claim.  Enhanced R&D of £200k reduces this to a loss or £150k - is the 14.5% multiplied by the £200k of the £150k and why?

Any links to the relevant HMRC guidance would be much appreciated - the only one I can find still quotes 11% so I guess is a little out of date!

Any help much appreciated.

Thanks

Replies (7)

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By User deleted
02nd Apr 2015 08:28

You need to clarify your figures

What was the actual R&D spend? (ie is it included in the profit of £50K?)

In principle, though, the % is applied to the lower of the surrenderable loss - which is the lower of the enhanced R&D loss and the actaul loss available. Using your figures, which may or may not be correct, that would be the £150k.

The guidance at CIRD90500 remains relevant - the only point that needs updated is the % (which is confirmed at CIRD80260).

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Replying to GW:
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By pbolton
02nd Apr 2015 09:17

I was only using those figures as rough examples but I did assume that the actual R&D spend was already included in arriving at the £50k.

To complicate things further, the client I'm working on is a Dec 14 year end so straddles the 2 tax periods - part will therefore be at 11% with the last 9 months at 14.5%.  I've split it out as best I can but it just means that there's some unrelieved loss to carry forward which is a shame.

Thanks for your help BKD

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By User deleted
02nd Apr 2015 09:29

Why is there unrelieved loss to c/f?

Using your figures:

Profit before R&D claim (but including actual R&D spend) is £50k

Additional R&D relief is £200k (suggesting actual R&D spend is £160k)

So, total enhanced R&D expenditure is £360k and loss after additional deduction is £150k.

If that £150k loss is surrendered for tax credit - at whatever % - that is the end of it. Where are you getting the carry forward loss from?

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Replying to max-6:
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By pbolton
02nd Apr 2015 10:13

The carry forward is because of the split pre and post 1st April.  The enhanced R&D spend for post 1st April is actually less that the loss for that period so the entire loss can't be utilised seemingly.

Our tax software does do the calculations but it's made mistakes in the past so we always like to double check it manually as well!!

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James Reeves
By James Reeves
02nd Apr 2015 09:57

Software

Does your CT software not calculate the tax credit automatically?

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By User deleted
02nd Apr 2015 11:11

I understand - I think


But your figures must be different than in the original question. If you started with an overall profit  of £50k for the full period (that profit reflecting R&D spend but before enhanced relief) I can't see how you arrive at an unused loss. I know that the straddle comps are tricky so I may be missing something but it doesn't seem to make sense. Perhaps actual numbers would help.

EDIT - worked it through with some numbers of my own and, yes, I can see how an unrelieved loss may arise.

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Replying to Duggimon:
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By pbolton
02nd Apr 2015 11:31

Thanks again.  I didn't have

Thanks again.  I didn't have the actual numbers to hand when I posted on here last night but I at least understand how it should all flow through now and, more importantly, it appears that our software has got it right this time!

Messy, messy, messy!

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