How can I get my client a cash payment for their R&D tax relief?
Share this article
The question of ‘will my client get a cash payment?’ is one that comes up a lot for us here at WhisperClaims, and, as with so many aspects of R&D tax relief, the answer is ‘it depends’!
The main thing to realise is that, when it comes to how your client receives their tax benefit, you have very little control! The rules are very cut and dried and depend on the claimant’s tax and profit/loss positions. Here we’ll set out all of the situations that will lead to your client receiving a cash pay-out, and some of the things that might prevent this.
The first and easiest to explain situation is where the claimant company has already paid corporation tax for the claim period and will therefore receive some or all of their R&D tax relief benefit in the form of a tax rebate. These are generally paid out automatically when the amended CT600 is received by HMRC and can arrive in as little as a week!
The main thing to bear in mind here is that if the claimant company has any outstanding debts with HMRC then HMRC may use all or part of the tax rebate to settle these debts. This may mean that the claimant company receives no cash at all.
SME tax credits
Calculating the tax benefit from a claim for SME R&D tax relief can be tricky! However, if you’re looking at whether your client is likely to be able to claim tax credits, the key thing to work out is whether they will be loss making after the enhanced deduction (130% x eligible expenditure) is applied. Only SMEs that are loss-making after the deduction is applied can claim tax credits. Remember that the claimant company has a choice here between surrendering losses for a tax credit and carrying those losses forward, which can be more beneficial depending on the likelihood of having to pay corporation tax in future years.
Again, if the claimant company has any outstanding debts with HMRC then HMRC may use all or part of the tax credit to settle these debts. This may mean that the claimant company receives no cash at all. It’s also important to note that SMEs that remain in profit after the deduction is applied cannot claim tax credits, and therefore will not receive any cash payments, assuming that they are not due a rebate.
R&D Expenditure Credit (RDEC)
The situation for large companies or SMEs that have to claim through the RDEC scheme is much more straightforward – they can only claim a tax credit. While this does mean that they are more likely to receive a cash payment, you need to bear in mind, again, that HMRC may use the tax credit to settle any existing debts the claimant company has to HMRC. This is dealt with in a certain order, and can include debts from previous financial periods. The steps to claiming RDEC also allow for the relief to be shared across a group, which would again reduce the payable credit.