A 9.1% “above the line” ATL R&D Tax Relief will be introduced from the 1st April 2013 for large companies. ATL will initially be optional, however will become compulsory from the 1st April 2016.
R&D Tax Relief Above The Line ATL
Curently separate rules deal with R&D Tax Releif claims by small and medium-sized companies (SMEs) and claims by large companies. Under the current system, R&D relief for large companies is a ‘superdeduction’ of 130% of qualifying expenses, which reduces taxable profits. The SME scheme also enables SMEs to claim a payable R&D tax credit where the relief cannot be offset against the company’s corporation tax bill, for example due to losses. This is currently not available for large companies.
The ‘above the line’ (ATL) R&D tax relief credit will instead be calculated directly as a percentage of the company’s R&D spend. The ATL credit will be able to be recorded in companies’ accounts as a reduction in the cost of R&D – that is ‘above’ the tax line.
Profit makers and loss makers will be treated equally in terms of the benefit they derive from the releif.HMRC
The new ATL R&D tax relief credit will be available at a headline rate of 9.1%. It will be taxable and will be fully payable, net of tax, to companies with no corporation tax liability. The Treasury said that this will ensure that “profit makers and loss makers are treated equally in terms of the benefit they derive from the relief”.
Where a T&D tax relief credit is paid to a company rather than set against its corporation tax liability, tax will be withheld at the main rate of corporation tax. This withheld tax will be available to be carried forward to set against any future corporation tax liabilities of the company.
Groups will be able to surrender the ATL tax relief credit to set against the corporation tax liability of a group member or surrender the tax withheld on a payable credit to set against the corporation tax liability of a group member.
In order to “safeguard the ATL credit scheme from abuse” the amount of payable credit will be limited to the amount of a company’s PAYE/NICs liabilities in relation to staff engaged in qualifying R&D activities in the accounting period.
Is it effective from the accounting period start date or from the date of qualifying expenditure?
It was originally intended that the new R&D tax relief credit would be available for accounting periods beginning on or after 1 April 2013. It has now been announced that it will be available in respect of expenditure after this date. The Treasury says this “will allow companies to realise the benefits of the ATL credit sooner and will ensure that companies are not disadvantaged by the timing of their accounting period."
Companies will be able to elect to claim R&D relief by way of the ATL credit at the end of their accounting period. However, once a company has elected to claim the ATL credit, it will not be able to claim the relief as a super-deduction in subsequent accounting periods. Companies that do not elect for the ATL credit will be able to get the super-deduction until April 2016.
Myriad Associates are leading R&D Tax Relief experts that specialise in optimising claims for both SMEs and Large Companies. If you have any questions relating to this post or any general R&D Tax Credit matter, please do not hesitate to contact them either by telephone or e-mail.