Lu EdwardsR&D Trainee Consultant

R&D tax credits can be paid in several ways depending on your business and its tax position; they are credited variously as: direct cash rebates, loss-reliefs, cash-credits, and combination reliefs.

R&D tax credits pay out the equivalent of up to 33p for every £1 you spend on qualifying R&D within loss-making small businesses. Profitable companies can expect to claim back 25% of their R&D costs. This expenditure covers staff salaries, pensions and National Insurance contributions (NICs); the use of freelancers or subcontractors; the cost of consumables and materials as part of the R&D process; and outlay on essential software.

What’s more: businesses may claim R&D tax relief for up to two years beyond the end of the financial year their R&D work relates to. There are several ways that R&D tax credit may be paid to those who use the R&D tax credit incentives; each is explained below.

Direct cash rebates

If you are claiming for R&D tax relief for a financial year in which you have already paid your Corporation Tax, your company tax return form for the corresponding year can be amended and HMRC will issue your business with a cash rebate.

Loss reliefs

If your business is loss-making following an R&D tax credit claim, it is possible to carry back the enhanced R&D losses to the previous financial year. You can also carry the loss forward to be offset against potential profits in the next financial year. It can also be surrendered as group relief.

If you choose to make an R&D tax credit claim for the same year as your latest Corporation Tax return (and your business is profitable), you can choose to use your relief to reduce your Corporation Tax bill.

Cash credit

For loss-making companies, it’s also possible to claim a cash credit from HMRC. This can only be transferred if you are prepared to surrender the enhanced losses of your R&D. This option is particularly beneficial for those who need help with cash-flow.

Combination reliefs

In the event taxable profits become loss-making as a consequence of R&D credit claims, it’s possible to use your relief in multiple ways. For example, you can somewhat reduce your company’s Corporation Tax, whilst carrying forward or back some of your R&D losses to offset as profits.

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