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Does a business need to be profitable to claim R&D?

This is a question that I am asked a lot. The quick answer, if you are making a loss, yes you absolutely can claim R&D Tax Relief (as long as you’re eligible 😉). But many businesses aren’t claiming because they don’t realise that even if they’re not turning a profit, they are entitled to R&D tax relief.


The truth is the benefit is actually greater for loss-making SME’s. Here’s the numbers:

LOSS

If a company has made a loss then HMRC will make a cash payment to them of up to 33.35p for every £1 spent on R&D activities.


PROFIT

If a company has made a profit then HMRC will make a cash payment to them of up to 26p for every £1 spent on R&D activities.

It may be the case that you were making profits prior to the R&D claim but following the application of the tax relief your business is now making a loss (from a tax perspective). In these circumstances, the amount of R&D benefit you receive will sit somewhere between the ranges set out above depending on their specific circumstances.


So what is R&D tax relief?

R&D tax relief was introduced by the government to support and incentivise innovation amongst small and medium sized UK businesses. A company can claim cash payments of up to 33% of the costs incurred on activities that are considered eligible and these funds can be used for any purpose including the payment of dividends!


All businesses are potentially eligible to claim the relief, provided funds have been spent on developing new or existing products, processes and other technologies.

For you to make a claim, a business must:

  • Make considerable improvement to existing technology

  • This does not always mean it is ground-breaking or innovative work. If a business is working to make their product, services, or processes, faster, less expensive, or better in some way, then this may be eligible for R&D tax relief.

  • Overcome technical challenges

Find out more about R&D Tax Relief here.

Perhaps you’ve looked at R&D Tax Relief previously, but you weren’t 100% sure about the rules. Get in touch, it takes a quick 15-minute call to find if you could be claiming.

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