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MX 5: Cancellation of R&D tax losses
or “How cancelled R&D tax loss credits affect your yearly tax losses”
You could also call this:

“Deduction available when company tax rate increases for those with R&D loss tax credits”

If you have an R&D loss tax credit and the basic tax rate for companies goes up, you might be able to get a deduction. This applies if the new tax rate is higher than the rate that was in place when you last got a deduction for your R&D loss tax credit, or higher than the rate when you first got the credit.

To work out your deduction, you’ll use a special formula. This formula takes into account how much the tax rate has changed and how much R&D loss tax credit you have left.

The formula looks at your total R&D loss tax credits from past years. It then subtracts any tax you’ve paid, plus some other tax adjustments. It also takes away any R&D repayment tax you’ve already paid.

The calculation compares the old tax rate to the new one. The ‘old rate’ is whichever is highest out of: the rate before the increase, the rate when you last got a deduction for this credit, or the rate when you first got the credit.

This deduction helps balance out the effect of the tax rate increase on your R&D loss tax credits.

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Next up: MX 7: Reinstatement of R&D tax losses and R&D repayment tax

or “Repaying R&D tax credits when company circumstances change”
Next

Part M Tax credits paid in cash
Tax credits for R&D tax losses

MX 6Deduction if increase in basic tax rate for company

  1. This section applies for a person who has an R&D loss tax credit for a tax year (the credit year) before a tax year (the current year) for which the basic tax rate for a company is increased (the rate increase) if the rate increase results in a basic tax rate for a company that is greater than the basic tax rate for—

  2. the latest tax year, before the current year, corresponding to an income year for which the person received a deduction under this section relating to the R&D loss tax credit; or
    1. the credit year, if the person has not received a deduction under this section relating to the R&D loss tax credit for an income year corresponding to a tax year before the current year.

      1. The person has a deduction, for the current year, of an amount calculated for each credit year using the formula—

        tax credits × (new rate – old rate) ÷ (new rate × old rate).

        Where:

        • In the formula,—

        • tax credits is the greater of zero and the amount calculated from the total amount of the company’s R&D loss tax credits, for tax years before and including the credit year, minus the total amount of—
          1. the company’s terminal tax, plus tax credits giving rise to imputation credits, minus refundable tax credits giving rise to imputation debits, for the period beginning with the earliest credit year and ending with the tax year before the current year:
            1. earlier payments of R&D repayment tax relating to the R&D loss tax credits for credit years before the current year:
            2. new rate is the basic tax rate for a company after the rate increase:
              1. old rate is the greatest of—
                1. the basic tax rate for a company before the rate increase:
                  1. the basic tax rate for a company for the latest tax year, before the current year, corresponding to an income year for which the person received a deduction under this section relating to the credit year, if there is such a tax year:
                    1. the basic tax rate for a company for the credit year.

                    Notes
                    • Section MX 6: inserted (with effect on 1 April 2015 and applying for income years beginning on or after that date), on , by section 213(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).