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R&D Tax credit rates and allowances 2021

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The calculation of tax benefit from a R&D tax relief claim can be complicated. The R&D tax credit rates of relief differ between the two schemes, and for companies in profit and those in a loss-making position (for more information on the different schemes, see R&D Tax Credits Guide 2021). WhisperClaims does not calculate the tax benefit of the claim, because it is important that you, the advisor, work with your client to agree the best way for them to benefit from the scheme. However, good tax advice starts with robust figures, and the eligible spend figures calculated by WhisperClaims are robust and defensible. 

Current R&D tax credit rates of relief

SME

Enhancement rate

130%

 

Tax credit rate

14.5%

RDEC

Tax credit rate

13%

How to calculate the tax benefit

Profit-making SME example

  • Business made profits of £250,000 for the year
  • Corporation tax (19%) due before R&D claim = £47,500
  • Business has £100,000 of eligible expenditure
  • SME enhancement rate 230%

Calculation

Profit before R&D £250,000
Enhanced deduction (£130,000)
Revised Profit £120,000
Corporation tax at 19% £22,800
Tax benefit £24,700

* £100,000 x 230% = £230,000. However, £100,000 of costs are already included in the profit figure so only £130,000 should be deducted

Loss making SME example

  • Business made loss of £250,000 for the year
  • Business has £100,000 of eligible expenditure
  • SME enhancement rate 230%
  • Surrender credit 14.5% of enhanced R&D costs 

Calculation

Loss before R&D (£250,000)
Enhanced deduction* (£130,000)
Revised Loss (£380,000)
Maximum losses available to surrender**  (£230,000)
Tax credit received £33,350

* £100,000 x 230% = £230,000. However, £100,000 of costs are already included in the profit figure so only £130,000 should be deducted

** £100,000 x 230% = £230,000. Surrendered losses cannot exceed the enhanced expenditure.

RDEC example

  • Business has £100,000 of eligible expenditure
  • Business has turnover of £500,000
  • Business made profit before R&D of £200,000 for the year
  • Tax credit rate 13%

Calculation

Turnover £500,000
R&D expenditure £100,000
Other expenditure £200,000
Profit/(Loss) before tax £200,000
RDEC at 13%  £13,000
Profit/(Loss) before tax £213,000
Tax charged at 19% £40,470
RDEC credit (£13,000)
Tax payable £27,470
Net tax benefit* £10,530

* Tax payable without RDEC £200,000 x 19% = £38,000

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