The measure
From April 2013 the Government will introduce an above the line (ATL) R&D credit. This will have a minimum before tax benefit rate of 9.1% and enable loss making companies to claim cash credits. A consultation will be announced shortly after the Budget dealing with the design of the credit and the rates of relief.
This change will move the R&D benefit from the tax line in a company's accounts to operating profit. A company will therefore be able to directly offset the relief against the cost of carrying out qualifying R&D in the same was as it would with a grant. This will make the relief more visible to the people carrying out the R&D and is expected to drive positive decision making behaviour by industry.
Who will be affected?
This will affect all large companies who carry out qualifying R&D, but will have a particular incremental cash benefits for large companies who have tax losses.
When?
The measure will be introduced from April 2013.
Our view
There was widespread support in previous R&D consultations to move the current R&D tax relief to an ATL credit and we believe that this will benefit many companies.
The existing R&D tax credit will provide a rate of relief from April 2012 of 7.2% and in the absence of an ATL credit this would have fallen to 6.9% in April 2013. The minimum pre-tax benefit rate of 9.1% equates to a post tax benefit of 6.93% and the Budget therefore confirms that there will be no dilution of benefits as a result of the implementation of an ATL scheme.
No indication was given about whether this would apply to SMEs but our expectation, consistent with the Autumn statement, is that this is a change which is targeted primarily at large companies and that the rate of R&D relief for SMES will not be affected.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
