Small and medium-sized enterprises that make a loss stand to benefit from an increase in research and development tax credits.
The Chancellor announced an increase in the repayable research and development (R&D) tax credit for loss-making small and medium-sized enterprises (SMEs) from 11% to 14.5%. Since 2011 the tax credit movement had been downwards, so this reversal is good news for loss-making SMEs.
The R&D tax breaks have been subject to much revision in recent years. To recap, there are two distinct schemes for SMEs and large companies. To qualify as an SME for R&D purposes, the company must not exceed the following limits:
Limits for expenditure incurred on or after 1 August 2008 | |
Number of employees | <500 |
Annual turnover | <100,000,000 Euros |
Balance sheet total | <86,000,000 Euros |
The levels of relief available for expenditure by SMEs on qualifying R&D are as follows:
The way that the tax credit relief operates is best given by example:
SME Ltd has the following results for the year ending 31 March 2015: Trading loss £200,000 Qualifying R&D expenditure £ 60,000 The surrenderable loss is the lower of:
The repayable tax credit is therefore £135,000 x 14.5% =£19,575. The trading loss of the company to carry forward is £200,000 -£135,000. |