There are various factors which can determine how you might receive your R&D tax credits. In this article, we’ll explain those factors as well as the ways in which different tax credit benefits are likely to be “paid out”.
Factors which can determine how your tax credits are received
The scheme you’re using
Through the SME R&D tax credit scheme, the tax credit you get for R&D activities decreases your taxable profits. If your business is operating at a loss, you might be eligible for a cash credit in certain scenarios.
On the other hand, the benefit you receive from the Research and Development Expenditure Credit (RDEC) scheme are evident in your financial statements as income, which is taxable. This credit, in the end, reduces your corporation tax obligation or may be received as a cash credit in specific circumstances.
The tax position of your company
Whether your company is profitable and taxpaying, or loss-making can affect how you will receive the benefit of your claim. That might also apply if you have other debts owed to HMRC, or if other companies in the same group have profits or losses.
In some cases, a business’ wishes or personal preferences can also influence how they receive tax credits. For instance, a business may opt to receive cash credits instead of reducing their taxable profits with a tax credit, which could help to bolster their cash flow.
R&D tax credit payouts when claiming through the SME tax credits scheme
Here are five ways you could receive your benefit if you are claiming through the SME tax credits scheme.
If you claim for a period during which you already paid Corporation Tax, your amended tax return will result in HMRC issuing a refund (or possibly an offset against other money you owe them).
Corporation Tax savings
If you are a profitable company and file your R&D tax credit claim at the same time as your original Corporation Tax return, you could receive tax relief through a reduction. This claim can reduce or eliminate your Corporation Tax liability, meaning you save money by simply paying less tax.
If your business makes a loss after claiming R&D tax credits, you have a few options. You can carry the loss back to the prior year if you made a profit, or carry it forward to offset future profits or use it for group relief. Loss carry-backs and group relief can provide immediate tax benefits in the form of a cash rebate or corporation tax savings. If cash flow is not a major concern, carrying the loss forward may provide better long-term value. However, if you need a quick cash injection, loss carry-backs and group relief may be more attractive.
If your business is operating at a loss, there’s an alternative option available to you. You can choose to receive a cash payment from HMRC by surrendering your R&D enhanced losses. This option can be beneficial for companies that need a boost to their cash flow, and can be worth up to 18p for every £1 spent on R&D. Note that this rate has substantially reduced for expenditure from 1 Apr 2023; prior to that date the rate was 33p for every £1 of R&D spend.
If claiming R&D tax credits causes your taxable profit to become a loss, you could utilise a combination of the above options. You could reclaim the Corporation Tax you’ve already paid, as well as carry the losses back or forward to offset against future profits, and make a Corporation Tax saving, or receive a cash credit by surrendering your losses.
R&D tax credit payouts when claiming through the RDEC scheme
If you use the RDEC scheme, a different process is followed, and the outcome of an R&D tax credit claim can differ. You can learn more about this scheme on our dedicated RDEC page.
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Thanks to our extensive experience, we have a special ability to guide creative companies on R&D tax credits. And we don’t just stop at giving advice, we go above and beyond.
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