Finding out how much your client can claim through R&D tax credits can be difficult for many reasons. As a result, it makes sense to use an R&D tax credit calculator to give their claim an estimated worth. This will allow your client to get a preview of how much they will be saving by claiming R&D tax credits.

Calculating the value of an R&D tax credit claim by hand is difficult due to the number of factors that must be considered. Things like qualifying costs and the size of your client’s business, to name a few, are all taken into account. It can often be hard to see how each of these areas interacts with one another. That’s where a tax credit calculator comes in.

Although an R&D tax credit calculator does not provide a %100 accurate total value of a claim, read on to find out about the benefits and limitations of using one.

How to calculate the R&D tax credits

Having a ballpark figure of how much your client can claim is important as it will allow them to plan ahead. This is relevant as R&D tax credit claims can take a few months to process. During this time, they will be able to reassign R&D assets and prepare to allocate the additional resources.

Using an R&D tax credit calculator will also make your client aware of their company size and overall claimability. This information is important for maximising an R&D tax credit claim down the line.

Read more about tips to maximise an R&D tax credit claim here.

How an R&D tax credit calculator works

All R&D tax credit calculators will ask your client to input information about their business. The software then uses these numbers to calculate how much their claim is worth. This will be a percentage return on the total.

The factors that affect the percentage of return your client is eligible for, are as follows:

• The size of the company.
• The amount of corporation tax your client pays each year.
• If your client’s business is profit or loss-making.

An SME company is one that:

• Has fewer than 500 staff on the payroll.
• Has a turnover of less than €100 million.
• Has a balance sheet worth less than €86 million.

Any business exceeding one of these figures is considered a large company.

Loss-making SMEs can still claim through the SME scheme, though they have a few more hoops to jump through. Oftent loss-making companies are able to claim the maximum percentage of R&D tax credits. So whatever the position your client is in, they can claim anywhere from 14.5% to 33% as an SME and up to 13% as a large company.

For more info on the types of companies that can qualify for R&D tax credits click here.

• Example calculation for a profit-making SME

Let’s say an SME has a yearly profit of £350,000 and a qualifying expenditure of £80,000. With Corporation Tax before an R&D tax credit claim of £66,500, the calculation is as follows:

£80,000 x 130% = £104,000 (enhancement – the SME scheme allows for an ‘enhancement’ of R&D expenditure by 130%)

£350,000 – £104,000 = £246,000 (revised profit)

£246,000 x 19% = £46,740 (Corporation Tax)

£66,500 – £46,740 = £19,760 (Corporation Tax saving)

This results in an R&D tax credit claim worth approximately 25% in savings. Although the numbers will vary between companies, this percentage saving is quite common for SMEs who are still profit- making after R&D tax relief.

• Example calculation for a loss-making SME

In this example, the SME has made a £200,000 loss with a qualifying expenditure of £75,000. As a loss-making company, they will have corporation tax of £0. This is because there are no profits to tax.

£75,000 x 130% = £97,500 (enhancement)
£200,000 – £97,500 = £297,500 (loss after deducting enhancement)
£75,000 x 230% = £172,500 (maximum losses to surrender for R&D tax credit/cash payment)

At this point, the business has a choice. They can either keep their losses to carry forward into the next tax year. (This would be to use them to offset future profits against tax). Or, option two is to surrender the revised losses to HMRC for a cash credit. This cash credit is at 14.5% of the total value of the surrendered losses.

If losses get surrendered in this scenario then:
£172,500 x 14.5% = £25,012.50

This results in a R&D tax credit saving of 33%. The business will carry forward a reduced £125,000 in losses.

Other factors that determine the value of a claim

The percentage saving generated by an R&D tax credit calculator can be hard to visualise. This is why you must accurately determine your client’s qualifying expenditure.

As talked about in our previous blogs, the value of a claim gets dictated by the number of qualifying projects and costs your client has. After putting your client’s details through an R&D tax credit calculator, the next step is to identify and include these extra details. This will give your client a complete picture of how much their R&D tax credit claim is worth.

However, it takes a lot of time and knowledge to accurately maximise a claim. This is because many individual costs have unique conditions attached to them. These caveats affect the percentage amount of the cost that can get included in a claim. As a result, totalling up your client’s qualifying expenditure can result in complications.

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Find out how much your client’s claim is worth with our R&D tax credit claim calculator.

That’s only the start of the software and expertise we offer to make claiming R&D tax credits easy. Our tax specialists guarantee to calculate your client’s claim with 100% accuracy while maximising its worth.

Book a demo with us today.