'Above the line' tax credit for larger companies involved in R&D to be introduced from 2013

Today's budget said that the credit will be a minimum rate of 9.1% before tax and loss making companies will be able to claim a payable credit. A consultation document on the detailed design of the credit will be published shortly and final rates will be decided following the consultation. R&D incentives for small and medium-sized companies (SMEs) will not be reduced as a result of this change.

R&D tax credits are a tax relief for companies undertaking R&D. Separate rules deal with claims by small and medium-sized companies (SMEs) and claims by large companies.

Enhanced tax relief is already available in certain circumstances for expenditure by companies on R&D but 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 most significant response from large companies to last summer's consultation on the R&D tax credit regime was the proposal to move from the current superdeduction to a system which reduced the company’s final tax liability rather than its taxable profits. This is commonly referred to as an ‘above the line’ tax credit system.

"The Government has conceded to mounting pressure from industry to shift R&D tax relief to an ‘above the line’ system," said Kate Featherstone, a tax expert at Pinsent Masons, the law firm behind Out-Law.com. "Although this is welcome news for large corporates, the change won’t be implemented until 2013 and the actual value of the shift will depend largely on the outcomes of the consultation that takes place in-between now and then."