Hi

I’m looking at establishing the correct Corporation Tax treatment in relation to the enhanced deduction for SME R&D tax relief. Sage Corporation Tax adds back the net R&D expenditure, before deducting both the enhanced amount and the net expenditure incurred, i.e. addback of 100% and then a further deduction of 186%/230%. However, within this process the profit/loss after the net expenditure has been added back is time apportioned between tax years.

I’m aware other software has simply left the original expenditure amount as is, and then deducted the enhanced amount i.e. 86%/130%.

As far as I’m aware, historically either method resulted in the same outcome as the rates were consistent in each tax year (130%). However, with the rate change on 1 April 2023, the above calculations now result in two very different outcomes for an accounting period that straddles 1 April 2023.

It is my understanding that the correct treatment would be to simply deduct the enhanced amount, as that is what the legislation refers to (CTA 2009, S1044). Can you confirm if Sage follows a piece of legislation which supersedes this, or whether there is an intention to update the software to reflect this treatment?

Do let me know if you need any further information to assist with the above.

Kind regards

Tom