How tax position effects R&D claims

When it comes to calculating R&D claims, there are a number of variables that can affect the outcome of a claims value. One of which is a company’s tax position.

The minimum return is based on a company having a neutral tax position essentially sitting at zero profit/loss – this position means that R&D expenditure is enhanced by 130% then multiplied by the 14.5%. This means you receive 19% of spend back as cash. 

The maximum is based on the company having ‘taxable’ losses greater or equal to the total R&D spend – this allows us to enhance expenditure by 230% before multiplying it by 14.5%. Under these circumstances a business receives around 33% of their R&D spend as cash.

In circumstances where a business has ‘taxable’ losses that don’t equal or exceed the R&D expenditure then we need to calculate things slightly differently. The R&D expenditure is enhanced by 130% then the ‘taxable’ losses are added onto this figure. For example, if a company spends £10,000 on R&D, but only has £8,000 in losses; then £10,000 is enhanced by 130% and the £8,000 is added. This is then multiplied by 14.5% giving a return of £3,045. This is of course a cash return of just over 30%.

Should the business be in profit or should you want to carry enhanced losses forwards for use against future corporation tax, then the R&D spend is simply enhanced by 130% and then multiplied by the tax rate at 19%. This provides a benefit of around 25%.

In the final scenario, when a business’s R&D expenditure exceeds the profit; the expenditure is still enhanced by 130%. From here, up to the value of the company’s profit is multiplied by the tax rate (19%) and the remaining amount is multiplied by 14.5%. For example, if a business again spends £10,000 on R&D but instead has a profit of £8,000; the expenditure is enhanced by 130% giving £13,000 in enhanced expenditure. Of which, £8,000 is multiplied by 19% and the remaining £5,000 is multiplied by 14.5% giving a cash return of £2,245. This is of a benefit of around 22%.