In his Autumn Statement today the Chancellor referred very briefly to the introduction of an “above the line tax credit in 2013 to encourage research and development by larger companies.”
There are no further details to be released at present and we understand this will not feature in the draft Finance Bill 2012 to be published next week.
However we understand that a new consultation exercise will be announced at the time of the budget in spring 2012, to consult on how the proposed rules will work in practice. This will cover the design, complexity and compliance challenges that will arise on implementation of this radical change in the method of giving the R&D tax relief to large companies.
It is likely that this major change in the R&D tax relief legislation will only affect larger companies and groups, that is ones with 500 or more employees and a turnover not exceeding 100 Million Euros and/or an annual balance sheet total of 86 million Euros. However there will be issues associated with the interaction with the current SME scheme and therefore changes may occur to this as well.
Moving the relief “above the line” for large companies will mean moving from the current super deduction against taxable profits to a system that reduces the company’s final tax liability rather than its taxable profits. The above the line credit will have to be payable, meaning that if there was not enough corporation tax payable to offset against the above the line credit then the credit could be set off against other taxes or could perhaps be cashed in for a payable sum. Currently where a large company does not have enough profits to make use of the existing super deduction then it is carried forward as a tax loss to be set off against future profits. So it is likely that a move to an above the line basis will enable the relief to be delivered to large companies faster than it is at present, especially those that are loss making.
Large businesses believe that this method of giving the relief will deliver a significantly better incentive effect, reducing the cost of UK R&D and allowing the UK to compete for International Research and Development more effectively.
Again the Government are demonstrating their commitment to listening to the view of business about how best to target the reliefs that are designed to incentivise the performance of R&D in the UK. We welcome the announcement today and the opportunity to consult on forthcoming implementation of this valuable extension to the relief for large companies.
Please do not hesitate to contact John Moore on 0207 292 8850 or at email@example.com if you would like to discuss the potential impact of this change to your R&D tax relief claims, or any other aspect of the R&D tax relief regime.