R&D tax credits reward forward-thinking companies who are investing in R&D. The credits are awarded in the form of a cash credit or tax reduction. We’ve designed this R&D tax calculator to help you understand how much you can potentially claim by submitting just a few simple details about your company.
Regardless if your company is profit- or loss-making, you can still benefit from R&D tax-credits.
For profit-making businesses:
You’ll receive a reduction in your Corporation Tax bill. The rate of relief is calculated at 25% of qualifying R&D spend. If you spent £50,000, you could get a £12,500 reduction on your tax bill.
For loss-making businesses:
As there are no tax liabilities as of yet, you’ll receive your benefit as a cash payment. The rate of relief is up to 33%, meaning for a £50,000 R&D spend, you could get a cash injection of £16,500.
Read more about calculating R&D tax credits for SMEs (with examples).
Research and Development Expenditure Credit (RDEC) is targeted towards large companies. SMEs who are unable to claim under the scheme can also apply for RDEC.
RDEC is received as a taxable benefit, calculated from 13% of your associated R&D costs, you’ll receive a cash benefit of 11% (after tax). This amount can be offset against your tax bill, or if no tax is owed, you’ll receive the amount as a cash payment.
For example, if you spend £100,000 on R&D, you can get an £11,000 benefit as a corporate tax reduction or as a cash injection.
Let’s use a real-life example to help demonstrate how R&D tax credits work.
Better Construction Ltd. has been trading for thirteen years and are a profit-making company. The process breakdown is as follows:
Based on the above, this means they qualify for the SME R&D tax credit benefit.
Once eligible projects have been identified (a qualified adviser can help with this), the R&D spend is calculated based on qualifying costs. In this example, the qualifying R&D spend amounts to £230,000.
As the company is profit-making, the R&D tax relief rate is calculated at 25% of the qualifying expenditure.
25% of £230,000= £57,500
Your R&D tax credit is calculated at £57,500
£57,500 is the sum of the entitled benefit. This is then taken off the end-of-year tax bill.
Remember, we are working from a taxable profit of £1,200,000 and the current rate of Corporate Tax at 19% (which is due to increase in April 2023).
19% of £1,200,000= £228,000
£228,000 (current tax owed) – £57,500 (R&D tax credit) = £170,500
The new Corporation Tax bill is £170,500 with a saving arising as a result of the R&D claim of £57,500.
Our team of expert advisers are here to support you on your R&D tax claim. Our award-winning process has 4 steps:
Step 1: Consultation — We’ll get an idea of key projects that would be eligible for your claim. Book your free consultation here.
Step 2: Technical workshop — Our expert advisers will get to know more about your business and get an in-depth understanding of qualifying spends.
Step 3: Submission to HMRC — You will see a final version of your R&D report written by our technical team; our fee includes enquiry support or additional HMRC liaison.
Step 4: Receive your benefit — Payment from HMRC is around 6-8 weeks, it’s then yours to enjoy straight away!
Whilst the calculator is helpful to understand the potential for R&D tax credits to benefit your business, the tool is indicative and no substitute for professional advice. Identifying eligible projects and their boundaries and costs requires a detailed knowledge of the legislation and the application of suitable financial methodology based on the nature of your business and your records for R&D. Navigating the world of R&D tax credits can seem daunting, but working with a trusted expert adviser can be crucial to ensuring your claim is accurate and robust when submitted to HMRC.
At Kene Partners, we take the time to understand your business so all our claims are ready for HMRC scrutiny and an accurate reflection of your investment in innovation. Enquiry support and HMRC liaison is included as standard in all our claims – we work with you until your benefit is paid. Our team comprises chartered tax advisers, engineers, science and technology PhDs, and sector specialists who will prepare the reports and claim documentation on your behalf. Taking the time to get to know your business means we’re also often able to find qualifying expenditure that other advisers may have missed.
To get a more accurate estimate of your potential R&D claim, get in touch to book your free consultation.
We know that the R&D legislation can be dense and daunting, so we answered some of the most frequently asked questions in a clear and simple way below. If you still have a question or want to know more, please contact us, we’d love to hear from you.
An R&D expense is any expenditure which the R&D legislation associated with your investment in R&D. Companies who are spending money in their risk-taking projects with science and technology may be investing in R&D for tax purposes. And, if eligible, you can claim back tax on some of these costs in the form of R&D tax credits. For the purpose of R&D tax credits, qualifying costs include staff costs (including subcontractors), consumables (including light, heat and water), and software.
You can read more about how costs are calculated for each category.
For loss-making companies, you have two options. Carry the additional loss forward where it will be offset against future taxable profits, or choose for 230% of qualifying expenditure – or revised loss – for the period (whichever is lower) to be surrendered to HMRC in exchange for a cash tax credit worth 14.5%.
For an example of calculating R&D tax credits for a loss-making company, you can read our piece on calculating R&D tax credits.
The SME incentive is for businesses with fewer than 500 staff, a turnover of less than €100m, and less than €86m of gross assets. RDEC is typically for larger business with more than 500 employees and a turnover of more than €100m. SMEs who have been subcontracted to do R&D work can also claim under RDEC. The maximum rate of benefit available is different for each scheme.
Read more about R&D tax credits.
To find out if you’re eligible for R&D incentives you can take our quick, online test. Otherwise, get in touch to book a free consultation.
R&D Tax Manager
Arrange a free consultation with our team of experienced and approachable tax incentive advisers today. Our mission is to help innovative companies access millions of pounds of government money set aside for funding your innovation. Your business could be next.