I am a director and shareholder in a company (a small or medium sized enterprise). We have £30,000 of tax credits from a research and development (R&D) claim. Can this be used to reduce our corporation tax bill by £30,000? Also, will this £30,000 get added to post-tax profits, which can then be used to pay dividends to shareholders? 

Arthur replies: 

If you look at HMRC’s Corporate Intangibles Research and Development Manual at CIRD89780, you can see that an R&D tax credit discharges a corporation tax liability for the accounting period (Step 1). The liability is not reduced by the credit but is settled by it like any other payment made by the company. Step 4 states that any remaining amount can be used to discharge any outstanding corporation tax liabilities (due but not settled) of the company for any other accounting periods. Since the company has less to pay to HMRC, it follows that its profit and loss account will be £30,000 more. So indirectly, there will be more to pay out as dividends.