Unlocking R&D Tax Relief: Calculating Your Benefit

Nigel Holland https://www.hollandandcompany.co.uk/about-us/meet-the-team/nigel-holland1/
Nigel Holland

The calculation of your R&D tax relief benefit is intricately tied to your company’s specific situation. It falls into one of three categories:

1. Profitable SME (Small and Medium-sized Enterprise)

Profitable SMEs can experience substantial savings, with an average benefit of 25%. For instance, if your company invested £100,000 in R&D projects in a year, your corporation tax liability could decrease by up to £25,000.

2. Loss Making SME (Small and Medium-sized Enterprise)

Even a loss-making SME can enjoy a financial boost. The formula for calculating the benefit differs from that of profitable companies and results in an R&D Credit.

In essence, the loss-making company exchanges £1 of loss for 14.5p. At first glance, this might seem unfavourable, but when the loss is carried forward against future profits taxed at a 17% rate, the perspective changes. In the future, the company essentially receives 17p for every £1 of loss. This makes the deal much more attractive.

The loss-making formula actually yields a benefit of approximately 33%. For example, if your company spent £100,000 on R&D projects in a year, the potential R&D Credit could reach £33,350.

3. Large Companies under RDEC (Research and Development Expenditure Credit)

Both profitable and loss-making large companies can reap benefits, potentially obtaining an R&D Credit of 9.7% of their R&D spend.

If your company invested £100,000 in R&D projects in a year, the potential R&D Credit would amount to £9,700.

Navigating the Subcontractor Landscape

Understanding subcontractor costs and their inclusion within the R&D claim can be complex. Rules for SME and RDEC subcontractors vary and heavily depend on several factors.

Unlock the full potential of your R&D tax relief with Holland & Co Chartered Accountants. Our expertise ensures you receive the maximum benefit from your R&D investments.