Can I still claim R&D tax credits if my company hasn’t turned a profit yet?

If you’ve been investing in research and development but your company hasn’t turned a profit yet, you may still be able to claim R&D tax credit relief. This government incentive was introduced in order to support businesses carrying out qualifying R&D activities, even during early stages of development when projects may not yet be commercially profitable.

As a loss-making company, you may have the option to receive a cash payment for qualifying R&D expenditure rather than carrying the loss forward. This allows businesses that are continuing to develop new products, processes, or software to access funding while their projects are ongoing.

You are still eligible to make a claim even if your company has not yet generated taxable profits. Under the legacy SME R&D relief scheme, companies can surrender a portion of their trading loss in exchange for a payable tax credit worth up to 14.5% of the surrenderable loss.

In addition, businesses can deduct an extra 130% of qualifying R&D costs from their taxable profits, on top of the standard 100% deduction already included in the accounts. This results in a total deduction of 230% of eligible expenditure when calculating the enhanced loss.

For loss-making companies, this enhanced deduction can increase the amount of loss available to surrender for a payable credit. In practice, this means businesses may be able to receive a cash benefit of up to around 33p for every £1 spent on qualifying R&D activities under the SME scheme.

For accounting periods beginning on or after 1 April 2024, most companies will instead claim under the Merged R&D Scheme, which applies a different calculation method. The level of benefit and the treatment of losses may therefore differ depending on the accounting period being claimed.