Budget 2013 announced the introduction of an above-the-line credit for research and development (R&D) expenditure incurred by large companies on or after 1 April 2013.
The above-the-line credit is designed to increase the visibility of large company R&D relief and provide greater cashflow support to companies with no corporation tax liability.
R&D expenditure credit may improve earnings before interest and tax and that might have an effect on bonuses awarded to employees.
The amount of the R&D expenditure credit (RDEC) to which a company is entitled for an accounting period is the relevant percentage of the amount of the company’s qualifying R&D expenditure for the period.
The relevant percentage is 10% or 49% in the case of ring-fenced trade (eg oil and gas extraction activities).
The credit will be brought into account as a receipt in calculating the profits of the trade for an accounting period. The gross credit will be taxable.
The company is entitled to an RDEC for the accounting period if the company has qualifying R&D expenditure which is allowable as a deduction in calculating for corporation tax purposes the profits of the trade for the accounting period.