Above the line R&D Tax credits – Budget update

John Moore, March 20th, 2013

We have previously set out our analysis of the way in which the draft legislation for the R&D expenditure credits (ATL) will work in our article of 13 December 2012.

In this afternoon’s budget speech the Chancellor has announced that the previously planned rate of 9.1% of the qualifying expenditure set out in the draft Finance Bill 2013 will be increased to 10%. Previously the rate had been set at 9.1% in order to give approximately the same benefit as currently given under the large company scheme at the tax rates in place for the year ended 31 March 2013. With the announced reduction in the corporation tax rates in future years the increase to 10% will increase the financial value of the relief.

Companies will be able to claim the ATL credit for their qualifying expenditure incurred on or after 1 April 2013.

The ATL scheme is optional until it becomes mandatory on 1 April 2016. In the meantime companies will be able to choose whether they claim under the existing R&D tax relief scheme for large companies, or under the ATL relief.

Our View

This announcement is welcome in that it will enable qualifying companies who are unable to claim under the SME scheme to benefit from an increased visibility of the relief in the company, hopefully leading to more R&D being carried out, and an increased reduction of taxable profits in the accounts. For companies unable to claim under the SME scheme it could also enable greater cash flow support to those companies with no corporation tax liability in the form of a repayable tax credit.

Please do not hesitate to contact John Moore on 0207 292 8850 or at john.moore@kinglybrookesllp.co.uk if you would like to discuss the implications of this for your company.

This briefing is prepared by Kingly Brookes LLP, a limited liability partnership. For further information on any of the material contained in or referred to in the briefing, please contact us. This briefing note is intended to keep our readers up to date with the developments in this area, but it is a general guide only and is not intended to be a comprehensive statement of the law and practice in this area. No liability is accepted for the opinions it contains or for any errors or omissions.