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The relief - an example

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What the relief could be worth

For SMEs, from 1 April 2015 the R&D tax claim enhancement was increased to 230% of the qualifying R&D expenditure incurred (previously 225%). So what could this be worth to an SME?

Example 1: Profitable SME

A qualifying SME incurs qualifying R&D expenditure during the year to 31 March 2016 of £100,000.

As a profitable company it can claim £230,000 as a deduction in respect of its R&D expenditure. This will reduce the corporation tax liability by £46,000 (based on 20% rate). The company therefore receives an effective relief on the expenditure of 46%.

Example 2: Loss making SME

If the SME above were loss making, the £230,000 attributable to the R&D expenditure can either be carried forward for relief against future trading profits or converted into a payable R&D tax credit. The rate of conversation is currently set at 14.5%, which would generate a payment to the company of £33,500 (£230,000 x 14.5%), which equates to 33.35% of the original expenditure.

To find out whether you may be eligible to claim, find your local office today