Please can someone who knows about these things help!
I have am working with a company that has brought forward loss of £55K. Before any R and D they made a profit of £75K. So for CT purposes they would have paid tax on £20K. However they have enhanced R and D costs at 230% of qualifying expenses of £850K. Our accountant says becasue there is a profit this year we can only carry the losses forward to future years. Our R and D guy says we can claim the 14.5% cash back from HMRC.
|Who is correct?
Replies (5)
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I can’t quantify the claim because it isn’t clear if the £850k is the actual R&D spend, the enhancement of 130% or the enhanced (230%) expenditure.
In any event, though, your accountant is wrong. You can surrender the lower of the loss, reflecting the additional deduction, and the enhanced R&D expenditure. Regardless of the uncertainty expressed in my first paragraph, it is clear that you will have a surrenderable loss for the year.
Not quite.
You calculate the tax-adjusted profit/loss before thinking about brought forward losses.
So your loss for the year will be £405k. Tax credit is therefore £58.725.
The loss of £55k is carried forward.
Are you sure that there hasn’t been a misunderstanding and that it was that loss that the accountant was referring to?
Neither!
His adjusted loss will be £55.8k (££22k + £33.8k).
Surrenderable loss is lower of adjusted loss and enhanced R&D spend, so £55.8k. (Although, for completeness, he could choose to surrender less than that - if, for instance, there were some taxable profits in the previous or following year - see below.)
But if the company had taxable profits for the previous year it would probably be better to carry back the loss against those profits. (And/or indeed carry them forward if there was certainty of taxable profits in the following year.)