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# R&D Tax Credit - apply to losses brought forward?

• ### Transferring shares to a new shareholder

Hi,

My company's tax return for 2016-17 is being amended for an R&D claim. I'm trying to understand if R&D tax credits can be applied to losses brought forward, or only to losses in the period?

Approx figures from tax return:

• Turnover: £300,000
• Losses brought forward: £105,000
• Losses carried forward: £100,000

All R&D expenditure in the period was on an EU-funded H2020 project. It was 70% funded, which I understand means that 70% of expenditure can go on the RDEC scheme for a 11% tax credit, and 30% on the SME scheme which can receive a 14.5% tax credit.

• Total R&D spend: £200,000
• R&D H2020 funding (70%): £140,000
• R&D expenditure matched by company (30%): £60,000

This is what I understand:

• Under the RDEC scheme, we can claim 11% tax credit on £140,000 H2020 funding = £15,400
• Under the SME scheme, we can claim enhanced losses of 130% on £60,000 R&D expenditure = £78,000

Here's what I don't understand. Can the 14.5% SME tax credit be applied to the losses brought forward or only for the period? For example:

• EITHER: The enhanced loss (£78,000) added to the period's profit (£5,000) gives a period loss of £73,000. Total R&D expenditure of 230% is £138,000, but the tax credit is applied to the lower of the period's loss and the R&D expenditure. So 14.5% of £73,000.
• OR: With a period loss of £73,000 added to losses brought forward of £105,000, total losses are £178,000. Now the lower of £178,000 and £138,000 (230%) is £138,000, and so the 14.5% tax credit can be applied to that.

It's quite messy with the two schemes. But thanks in advance for any help!

### Replies

19th Dec 2018 18:41

Hi,

B/f losses for the purposes of R&D are disregarded.

The tax credit (14.5%) if SME, is based upon the lower of the loss (tax loss, not accounting loss) for the period, as extended by the additional 130% R&D revenue expenditure and the R&D expenditure (230%)

Thanks (1)
By jombo
to RogueNation
19th Dec 2018 20:29

RogueNation wrote:

Hi,

B/f losses for the purposes of R&D are disregarded.

The tax credit (14.5%) if SME, is based upon the lower of the loss (tax loss, not accounting loss) for the period, as extended by the additional 130% R&D revenue expenditure and the R&D expenditure (230%)

Thanks. That clarifies the situation.

I think our accountants messed up with previous tax returns as most of the £100,000 losses brought forward are due to R&D and we were never given an option to claim the tax credits.

Thanks (0)
19th Dec 2018 20:50

Hi,

My post refers to being able to claim the 14.5% tax credit.

If you don't surrender the loss, as per my initial post, you can carry the losses forward, you just can't use b/f losses when making a claim for the tax credit.

Thanks (0)
06th Jan 2019 16:49

Hello, your methodology of split between RDEC and SME is correct but the R&D SME surrender only relates to current year losses enhanced by the uplift not brought forward losses. Regards, Nigel

Thanks (1)
By jombo
to Nigel Holmes
16th Mar 2019 01:20

Nigel Holmes wrote:

Hello, your methodology of split between RDEC and SME is correct but the R&D SME surrender only relates to current year losses enhanced by the uplift not brought forward losses. Regards, Nigel

Thanks Nigel (I forgot to reply to this at the time!)
Thanks (0)