How to calculate how much your R&D tax claim is worth

In the oil and gas industry, many businesses are working on researching and developing new technologies, but failing to claim relief. Ensuring you’re aware of the potential returns available in your sector is imperative at a time when the financial implications offer such a cause for concern.

Want to know whether claiming R&D tax credits is worth your time and effort? Here are the five stages that will help you get an idea of how much benefit your business might receive.

The exact figure you can claim in R&D tax credits will depend on a variety of factors, such as the size of your company, its tax rate and how many of your activities are eligible.

You can however get a rough idea of how much your claim might be worth before you get the process started. Here are a few points to consider:

1 – Decide on which scheme are you eligible for? SME or LC/RDEC?

Make sure you claim under the correct scheme. From 1 April 2015, SMEs can recover up to 26% (if in profit) and 33.35% (if loss-making) of eligible expenditure, while large companies can claim back up to 8.9%.

2 – Decide on which expenditure to include in your R&D tax claim

Don’t over claim! Only revenue expenditure (before VAT) on staff (direct and indirect), software, consumables and subcontractors, related to your R&D projects of course, can be claimed as eligible for R&D tax relief. Anything else will raise a few HMRC eyebrows!

3 – Are you in profit or loss-making?

SMEs can recover up to 26% (if in profit) and 33.35% (if loss-making).

4 – Received grant funding? Careful now!

Grants and subsidies can move a portion (or all!) of an SME’s project from the SME scheme to the Large Company scheme. It is therefore possible – and relatively common – for SMEs to be able to claim under both schemes for one or more projects.

5 – Get your calculator out!

It’s number crunching time…

  1. The first thing is to calculate is the size of the enhanced deduction. (for example, the SME rate is 130%). That’s the additional amount that can be deducted against its profits.
  1. The next thing we do is apply this enhanced deduction to your pre-tax profit, thus reducing the profits that would otherwise be taxed.
  1. Finally calculate how much your R&D tax relief value is worth, by multiplying your enhanced deduction value by the amount of corporation tax you have to pay.