R&D tax claims after the reset: Calculating tax benefit

The tax benefit is often the most visible outcome of an R&D claim, but it is also the point at which misunderstandings and misaligned expectations can arise.

In the final article in our ‘Back to basics’ series, we look at how the tax benefit is calculated. If you missed the previous posts, we have covered eligibility, technical narrative and eligible costs.

How is the tax benefit calculated?

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 all of the schemes, and, in some cases, between companies in profit and those in a loss-making position. The current tax credit and enhancement rates are shown in the table below:

| Effective dates | Enhancement rate | Tax credit rate | Benefit taxed?
SME scheme | Claims starting before 1st April 2024 | 86% | 10% | No
Old RDEC | Claims starting before 1st April 2024 | – | 20% | Yes
R&D intensive SME scheme | Claims starting before 1st April 2024, expenditure incurred after 1st April 2023 | 86% | 14.5% | No
New RDEC | Claims starting on or after 1st April 2024 | – | 20% | Yes
Enhanced R&D intensive support | Claims starting on or after 1st April 2024 | 86% | 14.5% | No

Calculating the tax benefit

New/old RDEC example:

Business made profits of £49,000 for the year

Corporation tax rate 19%

Tax credit rate 20%

Qualifying expenditure = £100,000

New/old RDEC Calculation:

Profit/(Loss) before tax | £150,000
R&D qualifying expenditure | £100,000
RDEC at 20% | £20,000
Profit/(Loss) before tax | £170,000
Tax charged at 25% | £42,500
RDEC credit | (£20,000)
Tax payable | £22,500
Net tax benefit* | £15,000

* Tax payable without RDEC £150,000 x 25% = £37,500

ERIS example:

Business made loss of £150,000 for the year

Business has £100,000 of eligible expenditure

ERIS enhancement rate 86%

Tax credit rate 14.5%

ERIS Calculation:

Loss before R&D | (£150,000)
Enhanced deduction* | (£86,000)
Revised Loss | (£236,000)
Maximum losses available to surrender** | (£186,000)
Tax credit received | £26,970

* £100,000 x 186% = £186,000. However, £100,000 of costs are already included in the profit figure so only £86,000 should be deducted

** £100,000 x 186% = £186,000. Surrenderable losses are the lesser of 186% of the qualifying expenditure and the unrelieved trading losses for the period.

SME scheme example:

Business made profits of £49,000 for the year

Corporation tax (19%) due before R&D claim = £9,310

Business has £100,000 of eligible expenditure

SME enhancement rate 186%

Tax credit rate 10%

SME Calculation:

Profit/loss before R&D | £49,000
Enhanced deduction* | (£86,000)
Revised Profit/loss | (£37,000)
Corporation tax at 19% | £0
Maximum losses available to surrender** | (£37,000)
Tax credit received | £3,700
Overall tax benefit | £13,010

* £100,000 x 186% = £186,000. However, £100,000 of costs are already included in the profit figure so only £86,000 should be deducted

** £100,000 x 186% = £186,000. Surrenderable losses are the lesser of 186% of the qualifying expenditure and the unrelieved trading losses for the period.

How WhisperClaims supports benefit calculation

WhisperClaims calculates the tax benefit based on the qualifying expenditure entered into the platform, applying the correct scheme logic transparently.

While advisers will always need to consider the wider tax position of the company, robust and defensible figures are a critical starting point. Consistency across eligibility, narrative and costs helps ensure that the resulting benefit can be explained clearly and with confidence.

If you’re reassessing how claims are prepared following recent changes, our recent webinar our recent webinar, “R&D tax claims after the reset: Re-examining eligibility, evidence, costs & benefit”, brings together all four elements of the process.

And for a more in-depth exploration about how WhisperClaims can support your in-house R&D tax service, why not book a demo?

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