Andy RoyceR&D Senior Manager

Andy plays a vital role in communicating R&D tax strategies to ensure optimal client value, whilst providing practical solutions to highly-technical tax legislation.

Unlike traditional R&D tax credits, the RDEC incentive  is specifically designed to encourage large corporations to invest in innovation. Therefore, it operates in a different way to acknowledge the challenges that larger organisations face with business growth, cash flow and profitability.

In this article we explore RDEC for a loss-making company, specifically looking at how RDEC tax credit can be claimed and whether it’s possible to carry losses forward to the next accounting period.

Can I claim RDEC if I’m a loss-making company?

One of the biggest differences between RDEC and R&D tax creditOne of the big differences between RDEC and traditional R&D tax credit is that you can claim regardless of whether your company makes a profit or a loss. is that you can claim tax credit amounts regardless of whether your company makes a profit or a loss.

RDEC tax credit is shown in your profit and loss account as ‘above the line’, which means you can offset the credit against any tax liabilities. For startups or loss-making organisations, it can hold a huge influence over business and investment decisions because it accounts for future profitability. However, the process to claim RDEC tax credits is more complicated if your company is making a loss; therefore, you should seek advice from a specialist.

At Kene Partners, we are an active member of HMRC’s R&D Communication Forum and remain at the forefront of tax and legislative developments, ensuring our clients and partners get the most relevant advice and guidance. Our team has helped organisations to claim over £75m in benefits to date. If you’re looking for tailored advice about how to claim RDEC tax credits as a loss-making company, get in touch to see how we can help.

How do loss-making companies receive their RDEC credit?

Every RDEC tax credit claim is made through your Company Tax Return form (CT600). Regardless of whether you make a profit or loss, the RDEC scheme will treat you equally, allowing you to claim the current RDEC rate of 13% (increasing to 20% for qualifying expenditure occurring on or after 1st April 2023).

However, if you are in a tax loss position, you can receive your RDEC tax credit in 3 main ways:

  • Carry back the loss: if you have previously made a taxable profit, you can offset the loss and receive a tax refund.
  • Immediate cash refund: this is calculated at 14.5% of the surrendered losses within the period.
  • Group relief: if your organisation operates within a group, your losses can be offset against taxable profits within the same tax group.

Can you carry forward losses after RDEC?

Yes. While there is no immediate cash or tax benefit, the RDEC scheme does allow loss-making companies to carry it forward and offset the loss against future taxable profit. If you have a predictable future profit, this can be a good option as the potential return can be higher than with the other three options – 20% of the enhanced R&D expenditure, compared to just 14.5%.

What is loss surrender?

If your organisation chooses to take the immediate tax credit amount of 14.5% or group relief, rather than hold out and carry the loss forward, you have effectively surrendered the loss. But the decision on whether or not to surrender the loss is not simple. There are several questions you should consider before deciding what is right for your organisation:

  • Does your business expect to be profitable in the short- or medium-term?
  • Have previous periods produced profit?
  • Is the value of the cash today worth significantly more than in the future?

Furthermore, it’s important to note that as a loss-making company making a claim through the RDEC scheme, you will need to wait until HMRC has processed your CT600 before receiving a refund, and this will need to be accounted for properly on your balance sheet.

Every company has their own individual circumstances, which is why no two loss-making organisations are the same. Therefore, it’s always best to seek professional advice before deciding whether to surrender the loss.