R&D Tax Credit Calculator

Calculate R&D tax credits for SMEs

To qualify as an SME (small and medium-sized enterprise), your company must have fewer than 500 staff and a turnover of under 100 million euros or a balance sheet total under 86 million euros.

SME R&D tax relief allows companies to:

• Deduct an additional 86% of their qualifying costs from their yearly profit, as well as the normal 100% deduction, to make a total of 186% deduction
• Claim a payable tax credit if the company has claimed relief and made a loss; the payable credit is worth up to 10% of the surrenderable loss

The exception to these guidelines is loss-making SMEs that are classed as being R&D intensive. If an SME’s qualifying R&D expenditure is at least 40% of their total expenditure, they can claim a higher payable tax credit rate of 14.5% for qualifying R&D expenditure.

Here’s a guide to working out the total expenditure figure on which you can claim R&D tax relief:

• Work out the costs that are directly attributable to R&D
• Reduce any relevant subcontractor or external staff provider payments to 65% of the original cost

• Add all costs together
• Multiply the figure by 86%
• Add this to the original R&D expenditure figure

Calculate R&D tax credits for RDEC

Large companies are covered by the RDEC scheme. These are defined as having more than 500 staff and a turnover of more than 100 million euros or a balance sheet total over 86 million euros.

It also applies to SMEs who are not available for the scheme described above due to having received grants or subsidies, or have been sub-contracted to carry out research and development work by a large company.

Whether the company makes a profit or loss, some or all of the R&D expenditure credit may be used to settle the company’s Corporation Tax liabilities, or those of another company within the same group.

The expenditure credit is calculated at a rate of 20% of the company’s qualifying R&D expenditure.

Here’s a guide to working out your R&D tax credits calculation under the RDEC scheme:

• Work out the costs that are directly attributable to R&D
• Reduce any relevant subcontractor or external staff provider payments to 65% of the original cost
• Add all costs together
• Multiply the figure by the expenditure credit rate of 20% to get the expenditure credit

Here are some examples for the different categories of business and the rates of relief that apply to them, bearing in mind the size of your claim will depend on the scale of your R&D activity and costs.

A profitable SME: In addition to the tax relief your company’s eligible R&D expenditure generates as part of its normal operational costs, a further 86% can be deducted from the yearly profit. That means with an R&D tax credit incentive of up to 21.5%, if you spent £500,000 per year on R&D you could potentially claim back up to £107,500 as a tax refund or reduced tax liability.

A loss-making SME: A payable credit can be claimed by loss-making SMEs. With an R&D tax credit incentive of up to 18.6%, if a company spent £500,000 per year on R&D it could potentially claim back up to £93,000.

A loss-making, R&D intensive SME: To be defined as R&D intensive constitutes at least 40% of a company’s total expenditure being spent on research and development. Businesses in this category are eligible for an R&D tax credit incentive of up to 27%, which means if you spent £500,000 per year on R&D you could potentially claim back up to £135,000.

A large company (RDEC scheme): By offering a tax credit of 20%, companies can claim back up to 20p for every £1 spent on qualifying R&D activities. Whether the company is making a profit or loss is immaterial. If a company spent £500,000 per year on R&D, it could potentially claim back up to £100,000.

If there is anything you are unsure about regarding the calculation of an R&D tax credits claim, please contact us on 01332 477070 or email info@randduk.com to find out more about the ways in which we can help.