How your R&D Tax Credit is paid depends on your financial situation and whether you’ve successfully optimised your claim.
R&D Tax Relief is a UK government scheme that incentivises companies to conduct R&D by lowering their corporation tax bill or providing a cash lump sum.
Through the scheme, you can claim up to 33% back on the money you invest in eligible R&D work back as government funding.
The average R&D Tax Credits payout was worth £88,000 last year – serious money that could catapult your business to new heights of growth.
How are R&D Tax Credits paid?
Here’s a simple breakdown:
If you’re profitable, and due to pay corporation tax, the R&D Tax Relief will decrease the amount of tax you have to pay.
If your tax relief is worth more than the amount of corporation tax you’re expected to pay, you’ll receive a cash credit for the difference.
If you’re unprofitable and aren’t required to pay any corporation tax, you’ll receive the value of your R&D Tax Credits as a cash lump sum.
This is literally money that’s transferred into your bank account from HMRC.
If you’ve already paid your corporation tax for the period in which the R&D took place, you’ll receive a rebate.
This is essentially a refund on the tax you’ve paid.
This is a pretty common situation because companies can claim R&D Tax Credits up to two years after the fact.
The other factor
There is one other factor determining how you’ll receive your tax credits.
That’s whether an R&D Tax Credits consultancy has optimised your financial position.
Consultancies like GrantTree can use HMRC provisions like surrendering losses and enhancing expenditure, which harnesses your R&D expenditure to make your business artificially less profitable, or exchange some of your losses – if they’re generated because of R&D spending – for cash.
This is perfectly legal and provides several useful benefits.
Benefits of surrendering your loss
First, it could change the way you receive your R&D Tax Credit. An R&D Tax Credits consultancy could convert your tax credits payout from a tax deduction into a cash credit.
This is particularly useful for companies who want to keep investing but are light on cash.
Working with a consultancy with deep knowledge of the R&D Tax Credits scheme could also increase the amount of tax credits you receive and reduce the amount of corporation tax you have to pay.
If you’re less profitable, you’ll pay less tax.
Using these provisions is a little complicated. It’s HMRC, after all. But could clearly be beneficial to your company.
You can find more on how R&D Tax Credits consultancies can help businesses here.
Or you could drop us a line! One of our R&D Tax Credits experts would be happy to answer any questions you have.