Hi Tom,

Thanks for using Community Hub.

The following page of the Help Centre covers this topic, I hope it's useful: R&D Expenditure >

If that helps, please click Verify Answer.

Regards,

Andy
Sage UKI

Hi Andy

Unfortunately this link does not provide an answer to the above question. It is a technical question around how Sage has applied to the legislation in respect of SME R&D expenditure.

Kind regards

Tom

Hi Tom, thanks for coming back. We're sourcing an answer from our Product team, I'll post another reply as soon as I have more information.

Andy

Hi Tom,

This is the reply received from the Product Team, I hope it's helpful:

In a period that straddles a rate change it is necessary to establish how much of the qualifying R&D expenditure was incurred before the rate change and, therefore, how much was incurred before the rate change. Furthermore, in a long period of account, it is necessary to apportion the profit/(loss) on ordinary activities before tax, normally on a time basis, between the two accounting periods. There is no apportionment between tax years as tax years are not generally relevant to CT. Neither is there is any apportionment between financial years at this stage although when looking at taxing any profits this will be relevant.

If we take as an example an accounting period (AP) starting 01/01/2023 and ending 31/12/2023 (which is also the period of account, so we can ignore any need to apportion the profit/(loss) on ordinary activities before tax).

Lets say there is qualifying R&D expenditure of £100,000 and that is the only expenditure in the AP and there is no turnover or other taxable income. So, we have a loss on ordinary activities before tax of £100,000.

In order to establish the additional deduction that is available (CTA 2009, s1044) on the qualifying R&D expenditure of £100,000, we need to know how much of the £100,000 was incurred before 01/04/2023 and therefore how much was incurred after 31/03/2023. Note: This is done in SCT by the user entering the relevant amount in R&D Claim screen for each amount allocated from the Profit and loss account.

We will assume that £40,000 of the £100,000 was incurred before 01/04/2023 and which attracts an additional deduction of 130%. Therefore £60,000 of the £100,000 was incurred after 31/03/2023 and which attracts an additional deduction of 86%.

The trade result is as set out below. I have shown both methods to demonstrate that the end result is the same. Method 1 is what SCT does. 

Method 1: Add back P&L a/c expenditure and deduct P&L a/c expenditure plus additional deduction

Loss before tax                                       (100,000)

Add: R&D expenditure in P&L a/c                                                       100,000

Deduct P&L a/c expenditure plus additional deduction:

Expenditure before 01/04/2023

Expenditure                         40,000

Additional deduction (130%)             52,000   92,000

Expenditure after 31/03/2023

Expenditure                         60,000

Additional deduction (86%)               51,600  111,600        (203,600)

Adjusted loss                                         (203,600)

Method 2: Deduct additional deduction

Loss before tax                                       (100,000)

Deduct additional deduction:

Expenditure before 01/04/2023

Expenditure 40,000

Additional deduction (130%)             52,000

Expenditure after 31/03/2023

Expenditure 60,000

Additional deduction (86%)               51,600                  (103,600)

Adjusted loss                                         (203,600)

 

If this helps, please click Verify Answer.

Regards

Andy
Sage UKI

Hi Andy/the product team

Thanks for the detailed response, though I would disagree that the two result in the same response. They do when looking at the totals for the claim period, but the results can deviate significantly when you look at what has happened in the pre/post April period and what is available as a surrenderable loss. Whilst not shown in the scenario below, you can often encounter a situation whereby you have profit in one portion of the period, and a loss in the other portion.

I have included an example below using the same figures as you, though I have gone into further detail as to what is happening in each portion of the period and what is available to be surrendered/carried forward.

I hope the above is helpful in demonstrating my point but do let me know if it would be easier to schedule a call to discuss this.

Kind regards

Tom

Hi Tom, I've some more information for you about this, I've sent you a direct message.

Andy