Research and Development (‘R&D’) enhanced tax relief has been available for many years, providing a ‘super-deduction’ from taxable profits for qualifying development expenditure.

However, some loss-making companies have found that the potential benefits of this relief have not been worthwhile in their particular circumstances despite engaging in qualifying development activities as they have been unable to ‘cash-in’ their tax losses.

The ‘Above the Line’ R&D credit (sometimes referred to as the ‘R&D expenditure credit’) was introduced from 1 April 2013, and now allows loss-making companies to claim a cash credit against the cost of their qualifying development activity. The credit is recognised in pre-tax profits (i.e. ‘above the tax line’) in the company’s financial statements.

Does it affect your company?

Companies which are eligible to claim R&D tax incentives wholly under the scheme for small and medium-sized companies (which is generally more beneficial in any event) can continue to do so and will not be affected by the ‘Above the Line’ credit.

Larger companies, and small and medium-sized companies whose R&D is funded or subcontracted to them by third parties, may find that the ‘Above the Line’ credit presents an opportunity to reduce their R&D costs. For these companies, it may be worth revisiting any previous considerations regarding the potential benefit or otherwise of claiming the tax incentives for Research and Development, as the new ‘Above the Line’ credit changes the landscape considerably.

How does it work?

Key features:

  • The R&D undertaken must be qualifying activity under the same rules as the R&D enhanced tax relief scheme.
  • A credit of 10% of qualifying expenditure is recognised ‘above the line’ in the financial statements.
  • This credit is itself taxable and for expenditure from 1 April 2014 provides a net benefit of 7.9% based on a corporation tax rate of 21%.
  • If the company has a corporation tax liability, this credit will be offset against it.
  • Otherwise, the credit will effectively be paid in cash by HM Revenue & Customs (‘HMRC’), providing the company has paid sufficient PAYE and NICs during the period in respect of staff involved in qualifying R&D activities.

How can Hazlewoods help?

Hazlewoods R&D tax specialists have a wealth of experience in preparing R&D enhanced tax relief claims and are fully prepared to advise on this new scheme. We offer:

  • A free initial consultation to explore whether your company could benefit from a claim under the ‘Above the Line’ scheme.
  • Assistance with all aspects of making the claim.
  • Help and advice in corresponding with HMRC if necessary after the claim has been submitted.

For further information, or to arrange a free initial discussion, please contact us today.

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