CIRD90500 - R&D tax relief: SME scheme: payable tax credit - for surrenderable loss
CTA09/Ss1054 - 1057
An SME may claim a payable R&D tax credit for an accounting period in which it has a surrenderable loss. The claim must be made in a return or an amendment to a return on or before the first anniversary of the filing date for the accounting period - FA98/SCH18/PARA83E (1).
An R&D tax credit is not taxable income of the company.
Going concern (S1057)
A company may only make a claim under section 1054 at a time when it is a going concern. See CIRD81130.
Surrenderable loss (S1055)
A company has a surrenderable loss if in an accounting period the company:
- obtains an additional deduction under section 1044 in calculating the profits of a trade and it makes a trading loss in that period in the trade, or
- it is treated as making a trading loss under section 1045.
For expenditure incurred on or before 31 July 2008 the amount of the surrenderable loss is the lesser of:
- the amount of the unrelieved trading loss sustained in that period
and
- 150% of the related qualifying R&D expenditure.
For expenditure incurred on or after 1 August 2008 the amount of the surrenderable loss is the lesser of:
- the amount of the unrelieved trading loss sustained in that period
and
- 175% of the related qualifying R&D expenditure
For expenditure incurred on or after 1 April 2011 the amount of the surrenderable loss is the lesser of:
- the amount of the unrelieved trading loss sustained in that period
and
- 200% of the related qualifying R&D expenditure.
For expenditure incurred on or after 1 April 2012 the amount of the surrenderable loss is the lesser of:
- the amount of the unrelieved trading loss sustained in that period
and
- 225% of the related qualifying R&D expenditure.
For expenditure incurred on or after 1 April 2015 the amount of the surrenderable loss is the lesser of:
- the amount of the unrelieved trading loss sustained in that period;
and
- 230% of the related qualifying R&D expenditure.
For expenditure incurred on or after 1 April 2023 the amount of the surrenderable loss is the lesser of:
The amount of the unrelieved trading loss sustained in that period
and
186% of the related qualifying R&D expenditure
Unrelieved trading loss (S1056)
The amount of the unrelieved trading loss is the amount of the trading loss less the aggregate of:
- any relief that was, or could be obtained by making a claim to set the loss against profits of the same accounting period under CTA10/S37(3)(a),
- any other relief obtained in respect of the loss,
- any amount surrendered to group or consortium members.
Amount of payable tax credit (S1058)
For expenditure incurred on or before 31 July 2008 amount of payable tax credit that a company is entitled to for an accounting period is the lesser of:
- 16% of the surrenderable loss for that period;
- the company’s PAYE and NIC liabilities for payment periods ending in that accounting period.
For expenditure incurred on or after 1 August 2008 the amount of payable tax credit that a company is entitled to for an accounting period is the lesser of:
- 14% of the surrenderable loss for that period;
- The company’s PAYE and NIC liabilities for the payment periods ending in that accounting period.
For expenditure incurred on or after 1 April 2011 the amount of payable tax credit that a company is entitled to for an accounting period is the lesser of:
- 12.5% of the surrenderable loss for that period;
- The company’s PAYE and NIC liabilities for the payment periods ending in that accounting period.
For expenditure incurred on or after 1 April 2012 the amount of payable tax credit that a company is entitled to for an accounting period is;
- 11% of the surrenderable loss for that period;
For expenditure incurred on or after 1 April 2014 the amount of payable tax credit that a company is entitled to for an accounting period is;
- 14.5% of the surrenderable loss for that period;
For expenditure incurred on or after 1 April 2023 the amount of payable tax credit that a company is entitled to for an accounting period is the lesser of;
10% of the surrenderable loss for that period
The sum of £20,000 plus 300% of the company’s relevant expenditure on workers for payment periods that end in the accounting period (CIRD90600)
Calculation of the payable tax credit for accounting periods spanning 1 April 2023.
Corporation tax is assessed and charged by reference to accounting periods. Company profits arising in an accounting period are apportioned between the financial years (FY) in which the accounting period falls. S8(5) CTA09 requires that the profits of an accounting period must be apportioned between financial years by reference to the number of days in the period.
Relief on qualifying expenditure may only be calculated at the rate which applied for the FY in which the expenditure was incurred. Where, for example, expenditure which was taken to the balance sheet in one accounting period and then amortised or impaired to the profit & loss account in a later accounting period is the subject of a claim, relief may only be claimed at the rate which applied when the expenditure was incurred.
The folowing example assumes that all qualifying expenditure was incurred and taken to the profit & loss account in the same accounting period.
Step 1
Identify qualifying R&D expenditure, on the basis of when it was incurred, between FY 2022 and FY2023
Apply the relevant rate of relief (130% or 86%) to the qualifying expenditure to calculate: -
the relief which the company may claim and
the sum of relief and qualifying expenditure
for FYs 2022 & 2023.
Step 2
The tax profit/loss for the whole accounting period is calculated, deducting the relief calculated above.
Step 3
Where the company has made a loss for the accounting period this should be apportioned by reference to the number of days in each financial year.
Step 4
Calculate the surrenderable loss and payable tax credit for FY 2022 using the rate of 14.5%
Step 5
Calculate the surrenderable loss and payable tax credit for FY 2023 using the rate of 10%
For the accounting period ended 31 December 2023 Company A incurred the following qualifying expenditure:
FY 2022 (1/1/2023 to 31/3/2023) £25,000
FY 2023 (1/4/2023 to 31/12/2023) £75,000
Taxable profits for the accounting period before R&D relief were £30,000
Step 1
FY 2022.
Relief - £32,500 (£25,000*130%)
Relief plus expenditure - £57,500 (£25,000+£32,500)
FY 2023
Relief - £64,500 (£75,000*86%)
Relief plus expenditure – £139,500 (£75,000+£64,500)
Step 2
Profit before R&D relief £30,000
Less
Relief £97,000
Loss for the period £67,000
Step 3
Loss £67,000
FY 2022 - £16,520 ((67,000/365)*90)
FY2023 - £50,479 ((67,000/365)*275)
Step 4
Loss - £16,520
Expenditure plus relief £57,500
Maximum payable credit £2,395.40
Step 5
Loss - £50,479
Expenditure plus relief £139,500
Maximum payable credit £5,047.90