Tax Insight: RD Expenditure Credit Update
R & D Expenditure Credits: Maria Kitt provides an update upon the new opportunities opened by the credit. She looks at the positive benefits of the credit which has long been available to other EEA R & D performers.
The RDEC supplements the Legacy large scheme and will become mandatory from 2016, can your R & D company benefit now?
From 01 April 2013, Large UK companies can access direct repayments for R & D work. The R & D Expenditure credit is worth 9.1% of the R & D spend. It will assist UK companies with surplus CT capacity make R & D claims finally worthwhile.
Now the legislation has been finalised, Tax Insight looks at how the Credit will work in practice and who will benefit.
The R & D Expenditure Credit was introduced by George Osborne following lengthy consultation with innovators and the profession. In its original format the scheme was called an ‘Above The Line’ credit supporting the Government’s wish to make R & D relief more visible as an incentive.
The credit is also available to SME companies, who for special reasons are regarded as within the large scheme for R & D purposes.
Can your company benefit?
It is often thought that all companies will benefit from claiming RDTR. However, many large companies with substantial losses brought forward had little capacity to benefit from enhancing these losses still further.
The RDEC recognised this issue, and provides such companies with the ability to obtain a cash credit for eligible R & D work. The scheme is mandatory from April 2016. In the period before then, profit makers may prefer to file RDTR claims based upon the ‘Legacy’ scheme, providing a 30% enhancement to the company’s R & D spend.
Switching into the Scheme will lock the company into the RDEC regime irrevocably. It also synchronises R & D relief with the company’s real time corporation tax liabilities.
UK R & D Performers
There is no doubt that the UK R & D performer can now make a positive contribution to the overall group tax position. This is because the overseas Double Taxation Relief is actually enhanced by the RDEC, whereas
previously the Legacy R & D relief mechanism would have reduced the DTR available group wide.
Each group’s tax position will differ and depend upon the Parent company’s jurisdiction. But the Credit now enables the UK system to match the tax
credit facility open to other EEA large companies.
How Can Tax Insight Help?
For the first time many large ompanies and SME companies bound into the large company scheme, can obtain cash funding for research and development
The scheme provides good opportunities. Tax Insight can assist your company with a professional understanding of the options available and their merits. Deciding whether to move into the RDEC, or remain within the old scheme until 2016 will impact upon both tax strategy and the company’s
Tax Insight can then assist in providing support for the issues involved with this choice, and by filing claims in line with the detailed legislation for R & D relief enhance the company’s cash flow from innovation.