The government has included in the Finance Bill 2013 measures to improve R&D relief with the introduction of the “Above the Line” (ATL) Credit for companies claiming under the “Large” scheme. The big winners from this change are “Large” loss making companies who can now claim cash back.
This should affect companies who are undertaking the development of scientifically or technologically new or improved products or processes who are either Large* or are blocked from claiming tax relief under the more beneficial “SME” scheme, for example because the work is subsidised by another entity. Companies making claims under the “Large” R&D scheme could previously claim a super-deduction of 130% of qualifying expenditure. This meant that for every £100,000 of qualifying expenditure a company obtained a £130,000 tax deduction. At the current full rate of tax this is an effective rate of relief of 29.9%
From 1 April 2013 companies can claim the ATL Credit. The proposed rate of the credit is 10%. This is shown as income in the accounts of the company and taxed accordingly. At the current full rate of tax this gives an effective rate of relief of 30.7%. At the current rates, the ATL scheme should be more beneficial.
Loss making companies can claim the 10% tax credit as cash back but this will be reduced by a notional tax charge to ensure loss making companies don’t benefit more than profitable companies.
Currently companies must decide whether to elect into the ATL regime. If an election is made it cannot be withdrawn so careful consideration is required. The super-deduction scheme is available until 1 April 2016 after which it will be removed and the ATL regime becomes mandatory.
* >500 employees or > €100m turnover and €86m balance sheet total including group/linked enterprises and partner enterprises