How will I receive my R&D SME Tax Credit payments?
Claiming R&D Tax Credits is a great way to support your R&D projects into the future or reduce your Corporation Tax bill in profitable years. In summary, the way in which you receive your R&D Tax Credits depends on the period you are claiming for and the profitability of the business in the years for which relief is claimed.
You can make a claim for R&D Tax Credit relief up to two full years after the end of an accounting period. The way that you receive that benefit is different depending on the nature of the claim:
R&D SME Tax Credit payments as a retrospective claim
If it’s a retrospective claim where you’ve already paid the tax on your profits in the period or made a loss and you cash in losses, your claim will usually be paid by HMRC as cash into your nominated bank account (included on the CT600 form).
Submitted as part of your end of year Tax Return
- Profit Making – If the claim is for the year that has just ended, the claim will reduce your Corporation Tax bill by the value of the claimed amount. If the claim is worth more than your Corporation Tax bill then it will erase your liability and the remainder could be paid as cash (see below). As a profitable SME, this is worth around 25p for every £1 that you spend on R&D.
- Loss Making – If the R&D Tax Credit claim puts you into a loss-making position for tax purposes, you can cash in the lesser of the adjusted losses, or 14.5% of the Enhanced R&D expenditure (230% of eligible expenditure). If you are an SME and if you’re heavily loss-making, the claim can be worth up to 33p for every £1 that you spend on R&D.
Using Losses in other years
- Carrying Back – If, for example, you had a very profitable year three years ago, and you then made an R&D Tax Credits claim, you can carry back the losses from the claim into your profitable year. This is then treated as a retrospective overpaid Corporation Tax claim as discussed above, with cash being paid into a nominated bank account.
- Carrying Forward – If the company has generated losses resulting from an R&D Tax Credits claim in the current year, but it is foreseen that the business will be profitable in the coming years, losses can be carried forward to be used as tax relief on future profits.
Owe money to HMRC?
- If the business owes any money to HMRC for other reasons, for example, VAT or PAYE/NI, then HMRC may reduce any payment due to offset what you owe them.
If you’re looking for additional help with your R&D Tax Credits claim, please contact us.