Companies that are small and medium sized enterprises (SMEs) carrying out qualifying research and development can currently claim a Corporation Tax deduction of 225% of their qualifying spend. This means that £100,000 spend would result in a £225,000 reduction in taxable profits, potentially saving £45,000 Corporation Tax (at 20%). However, if the company is loss making this benefit may not be received until future years when profits are made.
In order to improve the cash flow of these loss- making SMEs, the tax rules allow the company to surrender the loss attributable to the enhanced R&D spend for a tax refund. This has been increased from 11% to 14.5% with effect from 1 April 2014. So the £225,000 (based on £100,000 spend) would result in a refund of £32,625. The scope of companies who are eligible for Research and Development Tax Relief, is wider than many people imagine, so it may be worth discussing this if you think this could be a possibility for you.