The R&D Tax Credits scheme can help profitable businesses take their growth to the next level. But the benefits of claiming don’t stop there.
Many companies start claiming R&D Tax Credits when they’re unprofitable. That’s because it’s a generous and accessible source of funding for innovative, pre-profit businesses.
But R&D Tax Credits are also extremely beneficial to profitable businesses. Even as other forms of funding, like business lines of credit, become more available.
If your company is profitable, the scheme lets you recoup up to 24.7% of your R&D investment as a cash credit, reduction in your tax liability, or a mixture of the two.
So if you spend £100,000 on R&D, and you could claim back almost £25,000 from the government.
That’s a big windfall.
But cash isn’t the only benefit of claiming R&D Tax Credits as a profitable company.
What are the benefits of R&D Tax Credits for profitable companies?
Claiming R&D Tax Credits as a profitable business has a range of advantages, including:
- A highly accessible source of funding – R&D Tax Relief is much more accessible than other forms of growth capital, like VC investment.
- Maintain control of your business – R&D Tax Credits allow you to access additional funding without sacrificing equity in your business.
- Gain a competitive edge – The extra funding you receive from R&D Tax Credits helps you develop new products and services, allowing you to outpace your competition.
- Fast turnaround – You could receive your R&D Tax Credit in as little as 28 days. That’s far faster than other forms of funding.
- The money’s waiting to be claimed – If you’ve already conducted research and development, your R&D Tax Credits are waiting for you to claim them. So what are you waiting for?
How much support can profitable companies claim from R&D Tax Credits?
As we said, the R&D Tax Credits scheme lets profitable companies recoup up to 24.7% of their eligible expenditure.
Eligible expenditure being money spent on salaries, subcontractors, and other things involved in qualifying projects.
You can learn more about what kinds of costs qualify for relief here.
Exactly how much relief you’ll receive depends on which of the two R&D Tax Credits you apply to.
See, R&D Tax Relief is made up of two sub-schemes: SME R&D Tax Relief and the Research and Development expenditure credit (RDEC).
SME R&D Tax Relief is open to small and medium-sized companies.
For R&D Tax Relief purposes, an SME is defined as a business with:
- More than 500 employees
- Or an annual turnover of over €100 million
- And a balance sheet of over €86 million
RDEC is available to larger businesses, plus some smaller companies that are ineligible for the SME scheme.
| Financial Position | SME R&D Tax Relief | RDEC Scheme |
|---|---|---|
|
Profitable |
24.7% |
10.53% |
|
Breaking Even |
18.85% |
10.53% |
|
Loss-Making |
33.35% |
10.53% |
How do R&D Tax Credits work for profitable companies?
Let’s look at how the two schemes work for profitable companies.
The RDEC Scheme
RDEC is the simpler of the two schemes.
It works by giving you a cash credit worth 20% of your eligible expenditure.
RDEC is an above the line credit, though. So, as a profitable company, you’ll have to pay corporation tax on it.
After tax, the credit will be worth between 15% and 16.2% of your investment in R&D.
The SME Scheme
The SME scheme is a little more complicated.
For one thing, unlike RDEC, SME R&D Tax Relief can provide funding in a couple of different ways.
For profitable companies, SME R&D Tax Relief generally takes the form of a corporation tax reduction.
If you’ve already paid corporation tax, you will receive a cash rebate.
And if you’re near break-even, you could receive both a tax reduction and a cash credit. More about that here.
Enhancement
The other thing that makes the SME scheme more complicated than RDEC is the enhancement mechanism.
Through the scheme, you are allowed to increase – or ‘enhance’ – the value of your eligible expenditure by 130%.
So every £1 of expenditure becomes worth £2.30 on your balance sheet.
Doing this artificially increases your costs, which decreases your profits.
As your company is less profitable on paper, you’ll pay less corporation tax.
Here’s an example of how this works in practice.
| Reporting | Before Relief | After Relief |
|---|---|---|
|
Profit / Loss |
£1,000,000 |
£1,000,000 |
|
Qualifying Expenditure |
£350,000 |
£350,000 |
|
Enhanced Expenditure |
- |
£805,000 |
|
New Financial Position |
£1,000,000 |
£545,000 |
|
Corp. Tax Liability |
£190,000 |
£103,550 |
|
Corp. Tax Saved |
- |
£86,450 |
Here, the company receives a £86,450 reduction in its corporation tax bill based on £350,000 in qualifying expenditure.
This is handy sum it can reinvest in more staff, more equipment and yes – more research and development!
Get specialist help on your claim
We hope this blog gives you a better understanding of how R&D Tax Credits benefits profitable companies.
If you’re a profitable company looking to make the most out of the R&D Tax Credits scheme, your best option is to work with an R&D Tax Credits specialist like GrantTree.
Our tax and technical experts will maximise your claim while saving you time, energy and stress.
To find out more about how GrantTree can help you, just get in touch!
