How to calculate R&D tax credits

For many businesses the first question is ‘What’s in it for me?’. The second question is normally ‘How much effort will it take?’. So how do you work out what research and development (R&D) tax credits could contribute to your business? Our R&D tax credit calculator allows you to estimate what your claim could be worth and whether you would reduce your tax liability or receive a cash credit.

An online calculator can be helpful as an illustration of how your business might benefit from R&D tax relief, but it is a very basic assessment. There are many other factors that could influence the actual relief you could receive. That’s where an experienced adviser will add value.

R&D tax credit calculator

Our R&D tax credit calculator will help to illustrate what value of R&D tax your business might be able to claim, although make sure that you read the limitations below. The information is based on the R&D tax credit rates for the current tax year.

Limitations of an R&D tax calculator

If you’re new to R&D relief there’s no doubt that being able to gauge what level of relief may be available to your business will be immensely helpful. Our calculator you will give a feel for how your business might be able to benefit. Business size is stated in Euros to be consistent with the definition of an SME used by HMRC.

There are many other factors, not addressed in the R&D calculator, that will have a bearing on exactly what gets included in the costs that qualify as R&D. This is where an experienced adviser can help you to prepare a robust and well supported claim.
Please remember that our R&D calculator is only intended for illustration and should not be relied upon for submission of a claim.

1 Who are you?

SME

Fewer than 500 staff and either not more than €100m turnover or €86m gross assets.

Large Company

500 staff or more and either more than €100m turnover or €86m gross assets.

2 What is the financial position of your company?

Profit making

Loss making

2 What is your estimated spend on R&D per year?

£250,000

250000

£500,000

500000

£1,000,000

1000000

£10,000,000

10000000
We estimate you could receive upto £ as a tax refund or reduced tax liability

3 What is your estimated spend on R&D per year?

£50,000

50000

£250,000

250000

£500,000

500000

£1,000,000

1000000
We estimate you could receive upto £ as a tax refund or reduced tax liability

How to calculate R&D for SMEs

The potential benefit of R&D relief for an SME depends on whether your business is profit- or loss-making:

  • HMRC allows what are called Additional Deductions for any activity that qualifies as research and development. The current rate for these is 130%. Let’s assume that your R&D spend last year was £100,000. Your additional deductions would be £130,000
  • If your business is profit-making R&D tax credits reduce your Corporation Tax bill. For an R&D spend of £100,000, you could get a £24,700 reduction in your tax bill.
  • For a loss-making business there’s no tax liability to offset. Instead you would receive a cash payment by surrendering some, or all, of your losses. The surrender rate is 14.5%. For an R&D spend of £100,000, you could receive a cash credit of up to £33,350.

In some circumstances an SME may not be able to claim using this approach, for example when doing R&D for a large company. In this case they would claim using the RDEC.

How to calculate for RDEC

Large companies claim relief using the Research and Development Expenditure Credit (RDEC).

This is calculated as 12% of your allowable R&D costs. The treatment of the RDEC and how much you would receive is quite complex but, typically, you would receive an amount as cash. How this is calculated is quite complex and involves seven stages.

For illustration we’ll assume that you would be able to take the maximum amount of the RDEC as cash. Note that this won’t always be the case. So for a £100,000 R&D spend the net RDEC could deliver a cash credit of £9,720.

 

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