The general rule is that when an SME that is carrying on a trade
is entitled to VRR for an accounting period the company may claim
an additional deduction equal to 50%, deduced to 40% in respect of
expenditure incurred on or after 1 August 2008, of the qualifying
expenditure for that accounting period.
In the exceptional case where the qualifying expenditure
does not qualify for R&D tax relief for SMEs (
CIRD90000 onwards) the company may
claim a deduction equal to 150%, reduced to 140% in respect of
expenditure incurred on or after 1 August 2008, of the qualifying
expenditure for the accounting period.
If a company is entitled to VRR for pre-trading qualifying
expenditure for an accounting period it may elect to be treated as
if that pre-trading expenditure is a trading loss it had incurred
in that accounting period. The election must specify the accounting
period for which it is made and be made by notice in writing to the
Inland Revenue not later that two years after the end of the
accounting period to which it relates.
If the company is not entitled to R&D tax relief for the
qualifying expenditure the trading loss is 150%, reduced to 140% in
respect of expenditure incurred on or after 1 August 2008, of the
pre-trading qualifying expenditure.
These are the rules that apply where a company has treated
pre-trading qualifying expenditure as a trading loss:
A SME can claim a tax credit, which is known as a vaccine tax
credit, if it is entitled to VRR for an accounting period and has a
trading loss or a pre-trading loss for that accounting period. When
it claims vaccine tax credit it receives a payment in exchange for
the loss. The amount of the loss that may be surrendered in
exchange for a payment of tax credit is called a surrenderable
loss.
The surrenderable loss for an accounting period is the lower
of the unrelieved trading loss for that period and the VRR for that
period.
The unrelieved trading loss for an accounting period is the
trading loss for that period less:
When you make your calculations ignore any losses brought
forward from earlier accounting periods and losses carried back
from later accounting periods.
Example Drugs Unlimited PLC is entitled to VRR of
£4 million for its accounts year ended 30 June 2005. It has
losses brought forward £2 million and a trading loss of
£3 million for that year. This means that its unrelieved
trading loss is £3 million. The losses brought forward of
£2 million are ignored. Its surrenderable loss is £3
million because that is the lower of its unrelieved trading loss,
£3 million, and the VRR, £4 million.
If a company claims vaccine tax credit the Revenue pays it
the amount of the credit, at a rate of 16%
unless:
If there are outstanding CT liabilities the vaccine tax credit
may be used to discharge them. If that happens the vaccine tax
credit is treated as paid to the extent that it is used like that.
For example, if a company is entitled to vaccine tax credit of
£1 million and has outstanding CT liabilities of
£600,000, use £600,000 of the vaccine tax credit to
discharge the CT liabilities and pay the company the balance of
£400,000.
If there is an enquiry into the company’s return
payment may be withheld until the enquiry is completed. You may
make provisional payments before the enquiry is completed.
Do
not pay vaccine tax credit for an accounting
period until the company has paid its PAYE and Class 1 NICs for
payment periods ending in that accounting period.
Deduct the loss surrendered for vaccine tax credit when you
calculate the trading losses to carry forward.
The amount of vaccine tax credit that a company is entitled
to for an accounting period is 16% of the surrenderable loss for
that period. There is a limit to this. The total tax credits (SME
payable R&D tax credits
CIRD90000 and vaccine tax credit)
payable to a company for an accounting period may not be more than
the company’s PAYE and NIC liabilities for payment periods
ending in that accounting period.
Do not treat a payment of vaccine tax credit as income of
the company. This meansthat the company does not have to pay tax on it.
Claims for vaccine tax credit must be made in the
company’s return or amended return for the accounting period
for which it is made and must specify the amount claimed.
This is the normal time limit for claims. A claim may be
made, amended or withdrawn at any time up to the first anniversary
of the filing date for the return for the accounting period for
which the claim is made. The Revenue may extend this time
limit.
